The Financial Stability Oversight Council has voted to change how it designates non-bank financial institutions as systemically important, or “too big to fail.”
The vote by the council this week came after sustained complaints that FSOC’s review process of the country’s largest financial institutions lacked transparency. It also coincided with renewed efforts in Congress to rein in the council’s authority.
The FSOC was created by the Dodd-Frank Act to oversee institutions large enough to shock the overall economy were they to fail. Treasury Secretary Jack Lew chairs the council. The chairs of the Federal Reserve, Securities and Exchange Commission and the Federal Deposit Insurance Corp. are among its 10 voting members.
Going forward, the council will give earlier notice to firms as they come under review, and provide new channels of communication with companies’ internal regulators.
It will also make more information publicly available during the review process, and provide more opportunities for companies already designated as SIFIs to challenge the designation during annual review procedures.
“The changes adopted today represent an important step for the council that will increase the transparency of our designations process and strengthen the Council overall,” said Secretary Lew, adding:
“The council has the unique and critical mission of identifying and responding to risks to U.S. financial stability. It is a young organization that, as it grows and matures, must continue to be flexible and adjust its processes as needed to fulfill its mandate.”
Recently, MetLife, the country’s largest insurer, filed suit in federal court after it became the fourth firm designated as a SIFI by the council.
Firms tagged as SIFIs are subjected to oversight from the Federal Reserve and larger capital reserve and liquidity requirements. Critics of the FSOC say that creates unfair competitive disadvantages for the firms.
In a statement after announcing the filing of its lawsuit, MetLife CEO Steve Kandarian said existing stringent oversight from state regulatory bodies is more than enough to adequately regulate insurers.
The FSOC is reviewing whether large mutual fund companies like BlackRock and Fidelity, which together hold nearly $6 trillion in assets, pose a systemic threat to investors and the economy if they were to experience a market shock like the one suffered during the financial crisis.
The council is seeking public comment from asset management firms, which the board voted to extend another 30 days on Wednesday. The deadline for submission is now March 25.
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Nick Thornton
Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.
