This week, the Financial Stability Oversight Council (FSOC) issued a proposed analytic framework for financial stability risks.
The new framework, which is now open to public comment, is designed to provide greater transparency to the public about how the Council identifies and addresses potential risks to financial stability.
“Today’s proposals are important to ensuring the Council has a rigorous approach to identify, assess, and address risks to our financial system,” Secretary of the Treasury Janet Yellen said. “The Council remains committed to public transparency regarding its work, and today’s proposals would make us better equipped to handle risks to the financial system, whether they come from activities or firms.”
Specifically, the actions proposed by the Council would enhance FSOC’s ability to address financial stability risks by allowing it to use all of its statutory authorities to address risks to U.S. financial stability, regardless of the source of those risks. It also seeks to provide transparency to the public on how the Council performs its duties – specifically, how it identifies, evaluates, and responds to potential risks to U.S. financial stability.
Also, FSOC voted unanimously to issue for public comment new proposed interpretative guidance on the Council’s procedures for designating nonbank financial companies for Federal Reserve supervision and enhanced prudential standards. This proposed guidance would replace FSOC’s existing guidance and describes the steps it would take in considering whether to designate a nonbank financial company.
“We are proposing revisions to certain elements of the Council’s existing guidance that have made it difficult to use its nonbank designation authority. The existing guidance – issued in 2019 – created inappropriate hurdles as part of the designation process. These additional steps are not legally required by the Dodd-Frank Act. Nor are they useful or feasible. Some are based on a flawed view of how financial crises begin and the costs that they impose. It has been estimated that a designation process with these steps could take six years to complete. That is an unrealistic timeline that could prevent the Council from acting to address an emerging risk to financial stability before it’s too late,” Yellen added.
The two proposals will be for public comment for 60 days after their publication in the Federal Register.