treasury at night

Recently, Americans for Tax Reform submitted comments to the Financial Stability Oversight Council on their proposed guidance. This guidance would act as guidelines for the Council, its regulators and nonbank financial institutions to follow before the Council takes the drastic step of designating and institution as a Systemically Important Financial Institution. This designation comes with increased regulatory oversight, often times from the Federal Reserve, whose mission is to oversee banks not asset managers or insurers.

The Council was created from Dodd-Frank with the purpose of harmonizing communication and oversight between multiple federal agencies, state-based regulatory bodies and an independent insurance expert. FSOC is chaired by the Treasury Secretary and is comprised of 15 members, 10 with voting power and five serving as nonvoting members.

The Council has the ability to designate certain bank holding companies, non-bank institutions and financial market utilities as systemically important financial institutions. If a SIFI designation is made, the financial institution is subject to enhanced prudential oversight by the Federal Reserve Board.

ATR applauded the Council’s revised guidance and asked the Council to go further than guidance alone to create certainty for nonbank financial institutions. Additionally, ATR asked the Council to consider three additional suggestions for any finalized package.

  • The Council should consider the current regulations in effect for nonbank institutions and how additional regulations may affect how the nonbank operates.
  • The proposal would charge the Council to undertake a cost benefit analysis of the heightened oversight regulations associated with the SIFI designation. The analysis should also consider the indirect costs associated with designation.
  • Any final package should retain the requirement that the Council must first consult with the nonbank institution’s primary regulator throughout the designation process and allow the nonbank institution to offer its own solution for the Council to consider. This approach reserves the SIFI designation as a last resort option, similar to legislation (S. 603) proposed by Senator Rounds (R-S.D.) that ATR has previously supported.

ATR appreciates and is supportive of FSOC’s initiative to create certainty for nonbank financial institutions, something that was missing during the previous administration as they sought to first capture and punish rather than work to prevent future harm through due process and working with institutions to enhance their best practices. Click here to view the comments.