FSOC continues to consider comments on framework for financial stability risk, nonbank determinations

Public comments received on a proposed analytic framework for financial stability risk identification, assessment, and response – and on proposed guidance regarding nonbank financial company determinations — was a focus of the meeting late last week by the members of the Treasury’s Financial Stability Oversight Council (FSOC).

Made up of the leaders of federal financial regulatory agencies, and chaired by Treasury Secretary Janet Yellen, the FSOC met Friday; it released its readout from the meeting that afternoon.

According to FSOC, it will continue to consider public comments on both the proposed framework and the guidance on nonbank financial firms.

The proposals were issued for comment in April by FSOC. More specifically, the proposals would:

  • Enhance the FSOC’s ability to address financial stability risks by allowing the council to use all statutory authorities as appropriate to address risks to U.S. financial stability, regardless of the source of those risks.
  • Provide transparency to the public on how the FSOC performs its duties by, for the first time, broadly explaining how the council identifies, evaluates, and responds to potential risks to U.S. financial stability, whether they come from activities, individual firms, or otherwise.
  • Ensure a rigorous and transparent designation process by providing guidance for nonbank financial company designations guidance, including “significant two-way engagement with companies under review.” Treasury said that process would minimize administrative burdens on companies under review while providing ample opportunities to be heard and to understand the Council’s analyses. “Further, the separate proposed analytic framework explains how nonbank financial company designations fit into the Council’s broader approach to financial stability risk monitoring and mitigation,” the agency said.

Yellen indicated last spring that the proposals were issued because existing guidance for use of nonbank designation authority has made it difficult for the FSOC to use its authority.

Also at its meeting late last week, Treasury said FSOC:

  • Heard an update from Federal Reserve staff on international market developments, including the outlook for global financial stability and macroeconomic and financial conditions in China.  Council members discussed potential channels through which international market developments could affect the U.S. financial system and noted the resilience of the U.S. financial system to risks emanating from abroad.
  • Approved a fiscal year 2024 budget of nearly $14.2 million, for the FSOC secretariat at Treasury and the council’s independent member with insurance expertise.
  • Received an update from Treasury staff on the development of the Council’s 2023 annual report.

Readout of Sept. 22, 2023, FSOC meeting