In a November report, the Treasury Department issued two primary recommendations for how the Financial Stability Oversight Council should exercise its authority to subject systemically important nonbanks to enhanced oversight. If followed, they would mark a deeply concerning shift in the FSOC’s approach to its role as a systemic risk regulator.
First, the report recommends that the council consider the likelihood of a firm’s failure when deciding whether to designate it as a “systemically important financial institution,” or SIFI, and thus subjected to enhanced regulation and oversight by the Federal Reserve. But if the FSOC waits until a systemically important nonbank is likely to experience material distress, it’s too late.
The above excerpt was originally published in American Banker.
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