FSOC

Are State Regulators A Source of Systemic Risk?

The Dodd-Frank Act creates the Financial Stability Oversight Council (FSOC).  One of the primary responsibilities of the FSOC is to designate non-banks as “systemically important” and hence requiring of additional oversight by the Federal Reserve.  Setting aside the Fed’s at best mixed record on prudential regulation, the intention is that additional scrutiny will minimize any adverse impacts on the economy from the failure of a large non-bank.  The requirements and procedures of FSOC have been relatively vague.  We have, however, gained some insight into the process since MetLife has chosen to contest FSOC’s designation of MetLife as systemically important.

FSOC’s Arbitrary, Ever-Changing Double Standard

In the Dodd-Frank Act, Congress, without irony, decided the best way to end “too big to fail” was to have a committee of regulators label certain companies “too big to fail.”  That committee, established under Title I of Dodd-Frank, is called the Financial Stability Oversight Council (FSOC) and is chaired by the Treasury Secretary. Like so much of Dodd-Frank, FSOC gets to write its own rules. Unfortunately FSOC won’t even write those rules, but instead it has decided that it knows systemic risk when it sees it.

Subscribe to RSS - FSOC