House Committee MF Global Hearing Spotlights Risk Officer, NY Fed GC

In the story of the dramatic collapse of MF Global, the big name to appear above the title has been that of former CEO Jon Corzine. But as the U.S. House of Representatives continues to delve into the fiscal fiasco, the spotlight is being trained on more players, including the firm’s chief risk officer and the general counsel of the New York Federal Reserve.

On The New York Times DealBook blog, Ben Protess and Azam Ahmed write, “A House committee is expected to disclose on Thursday that MF Global, under Jon S. Corzine, stripped critical powers from its top executive in charge of controlling risk.”

According to the Times report, prior to the firm’s debt-driven meltdown:

MF Global replaced its chief risk officer, Michael Roseman, after he repeatedly clashed with Mr. Corzine over the firm’s purchase of European sovereign debt. The new risk officer, Michael Stockman, took over the position in early 2011 with one major difference: unlike his predecessor, he was not allowed to weigh in on the broader implications the trades might have on the firm, including whether they might undermine investor confidence.

In addition to problems with internal risk assessment at MF Global, a House Financial Services subcommittee is planning to “focus its attention on the patchwork of 20 regulators and federal agencies charged with oversight of MF Global. . . In particular, the committee will examine the role of the Federal Reserve Bank of New York, which did not have direct regulatory oversight over MF Global.”

Despite the NY Fed’s lack of direct oversight, the bank was involved in giving MF Global the “primary dealer” status that helped accelerate its accumulation of overseas debt.

The NY Fed’s general counsel, Thomas Baxter, Jr., testified before the Subcommittee on Oversight and Investigations. In his testimony, Baxter addressed questions about:

. . .why the New York Fed designated MF Global as a primary dealer. . .that decision came more than two years after MF Global initially approached the New York Fed about becoming a primary dealer. We made our decision after the firm went through a rigorous and careful application process, during which MF Global met all of our requirements. . . Through prompt and progressive action, the New York Fed protected its counterparty position and the interests of the American taxpayer, and we have sustained no loss.