The Financial Stability Oversight Council (FSOC) Seeks Feedback on Proposal Regarding Nonbank Financial Firms

The Financial Stability Oversight Council (FSOC) today voted unanimously to issue for public comment a proposed analytic framework for financial stability risks.  The framework aims to address potential risks to financial stability. At the same time, FSOC voted unanimously to issue for public comment new proposed interpretative guidance on its procedures for designating nonbank financial companies for Federal Reserve supervision and enhanced prudential standards.

FSOC may designate a nonbank financial company for Federal Reserve supervision and prudential standards if it determines that material financial distress at the company, or the nature, scope, size, scale, concentration, interconnectedness, or mix of the activities of the company, could pose a threat to U.S. financial stability.

The FSOC proposals claims to:

  • Enhance the Council’s ability to address financial stability risks.  The financial system continues to evolve, and past crises have shown the importance of being able to act decisively to address risks to financial stability before they destabilize the system.  The new proposed guidance claims to help ensure that the Council can use all of its statutory authorities to address risks to US financial stability, regardless of the source of those risks.
  • Provide transparency to the public on how the Council performs its duties.  The Council is proposing to issue a framework explaining how it identifies, evaluates, and responds to potential risks to U.S. financial stability, whether they come from activities, individual firms, or otherwise.  This framework outlines common vulnerabilities and transmission channels through which shocks can arise and propagate through the financial system.  It also explains how the Council considers the tools it will use to address these risks.
  • Ensure a rigorous and transparent designation process.  The proposed nonbank financial company designations guidance would continue to provide strong processes, including significant two-way engagement with companies under review.  These processes 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.

Secretary of the Treasury Janet L. Yellen who chairs FSOC said they remain “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.”

A summary of the first proposal is available here.

The summary of the nonbank financial proposal is available here.

A full text of the nonbank proposal is available here.



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