Congress should rein in the tendency of the FSOC to simply implement the decisions of the FSB in the US. The FSOC’s decisions on SIFI designations should be made on the basis of clear standards and guidelines; it cannot be simply a matter of regulatory discretion.
Under Dodd-Frank, FSOC has the authority to designate any financial firm as a systemically important financial institution if the institution’s “financial distress” will cause “instability in the US financial system.” Unless the power of the FSOC is curbed by Congress we may see many of the largest non-bank financial firms brought under the control of the FSOC and ultimately the Fed.
The Shadow Financial Regulatory Committee (SFRC) is a group of publicly recognized independent experts on the financial services industry — including experts in banking, insurance, and securities — who meet regularly to study and critique regulatory policies affecting this sector of the economy.
It is difficult to see how asset managers, of whatever size, could create systemic risk. By moving against an industry that cannot create systemic risk, the FSB and FSOC showed that their ambition wasn’t to prevent the next financial crisis, but instead to extend their power. That alone should be reason for repealing the authority of the FSOC under the Dodd-Frank Act.
In a September 2013 report, the Office of Financial Research (OFR), a US Treasury agency set up by the Dodd-Frank Act, suggested that the asset management industry could be a future source of systemic risk. However, the chances that an asset manager could trigger a systemic event is vanishingly small. The FSOC should spend its time elsewhere.
For more than two years, Congress, the insurance industry and insurance consumers have been waiting for the report of the Federal Insurance Office (FIO). The report was supposed to make recommendations for the modernization of U.S. insurance regulation, and it finally arrived last week, landing with a thud on desks in Washington and elsewhere.