Federal Reserve Board Gov. Daniel Tarullo said Thursday that work is still needed in determining whether the asset management industry is in need of additional regulation, but suggested that any future rules would "almost surely" address the market broadly rather than individual firms.

Speaking at an Institute of International Finance conference in New York, Tarullo said that the risks he sees potentially arising from asset managers — and so-called "shadow banking" — is around the potential for runs to be created in the marketplace and for greater leverage to take place than might otherwise. Tarullo said the risks posed by runs in particular are worrisome, because market participants may not act rationally when they fear their capital is at risk.

"When you have runs... people do not stop to think rationally about, 'Will this asset recover... when we get beyond this moment?'" Tarullo said. "Instead … the instinct to self-preservation and capital preservation takes hold."

Whether asset managers — including mutual funds, hedge funds and private equity firms — can pose a systemic risk remains to be seen, Tarullo said, emphasizing that the Financial Stability Oversight Council's ongoing probe into asset managers must run its course.

But in the event that it's clear asset managers do pose a systemic vulnerability, addressing those risks would almost certainly be done through a market-wide, activities-based regulation, rather than a firm-by-firm designation.

"You need to do the analysis before you reach that conclusion," Tarullo said. "If there are [risks], it's almost surely the case that response should be something that addresses directly... the nature of those risks, which is likely to be a market-wide phenomenon."

Such an approach would stand in contrast to how the FSOC has handled other nonbank financial industries. For example, it has chosen to individually designate the largest insurance companies — AIG, MetLife and Prudential — rather than crafting rules that apply to all insurance firms. (MetLife has sued FSOC, arguing it does not pose a systemic threat.)

FSOC first started weighing whether asset managers pose a risk two years ago after the Office of Financial Research issued a paper raising concerns about the industry. Asset managers pushed back hard against the report, but FSOC launched a probe in December seeking more information about the issue.

Many observers, including banks, have long worried that some asset management firms — which are not subject to the same supervisory rules that govern banks — are entering into business lines that have been traditionally the purview of banks, thus becoming "shadow banks."

The asset management industry issued a disjointed response in public comments to FSOC, with various companies detailing how their particular business lines do not pose systemic risks but providing regulators with little consensus on how to proceed, if at all.

Tarullo, whose views hold great sway within the Federal Reserve System and in the financial regulatory environment as a whole, was more reserved in his assessment of the risks posed by asset managers than some others on the Fed Board or industry observers.

Fed Vice Chairman Stanley Fischer said in a speech March 30 that he thought mutual funds and other similar asset management firms may pose a systemic risk because they provide liquidity to customers while holding illiquid assets, creating the potential for a run.

Treasury Secretary Jack Lew, who chairs FSOC, said when soliciting public comment on potentially regulating asset managers last December that there were "no predetermined outcomes" of the probe, hedging whether the council would act at all.

Securities and Exchange Commission Chair Mary Jo White has said the agency would issue new rules for asset managers, a move that many observers say is likely an attempt to preempt further action by FSOC.

Speaking on Thursday, Tarullo also said that he was afraid that the anemic growth demonstrated in the first quarter of 2015 could be a sign of broader economic problems, rather than transitory factors like a cold winter or a strike in the U.S. shipping industry. Whereas a stunted first quarter of 2014 was followed by a robust bounce in the second quarter, this year will probably be different, he said.

"Maybe things have actually slowed down a notch more generally," Tarullo said. "I think in a broader sense, there are more questions at this point than there were in 2014."

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