Washington, D.C. — Today, Treasury Secretary Janet Yellen will convene the first Financial Stability Oversight Council (FSOC) meeting of the Biden presidency. Ahead of the meeting, the Center for American Progress is publishing a new report that outlines the vital role that the FSOC can play in creating a more resilient financial system that supports long-term growth coming out of the pandemic.
The FSOC was born in the aftermath of the 2008 financial crisis in order to create an interagency body that would identify and address systemic risks across the financial system. But over the past four years, Trump administration officials systemically eroded the FSOC’s institutional capabilities, conducted fewer and shorter meetings, and used the council to undermine financial stability and deregulate financial institutions. However, many of the same fragilities that helped fuel the 2008 financial crisis manifested themselves in financial dislocations in March 2020, underscoring the need for a strong, proactive FSOC.
In “5 Priorities for the Financial Stability Oversight Council,” Gregg Gelzinis outlines five issues that should be top priorities for the Biden administration-era FSOC to ensure the safety and stability of the financial system and deliver more robust, equitable, and sustainable growth over the long term:
- Restoring budget and staffing at the FSOC and the Office of Financial Research (OFR). Secretary Yellen should work with the voting members of the FSOC and the OFR director to raise the budget and staffing levels to those in place at the end of the Obama administration as quickly as possible and conduct a thorough review to determine whether further increases are warranted.
- Repealing the 2019 systemically important financial institution (SIFI) designation guidance. One of the FSOC’s most powerful statutory tools is its authority to designate nonbank financial companies as SIFIs, which subjects them to heightened regulation and oversight. Through a 2019 rule, the Trump FSOC sought to tie the hands of future administrations looking to use this important authority. The FSOC should undo this harmful guidance and once again pursue designations where appropriate.
- Coordinating efforts to mitigate climate-related financial risks. The FSOC should embed a focus on climate change into its operating structure and use its statutory authorities to mitigate climate-related risks.
- Addressing the long-standing shadow banking fragilities that were resurfaced by the COVID-19 shock. The FSOC should conduct a comprehensive review of the COVID-19-related turmoil and issue recommendations to improve the resiliency of the shadow banking sector, including recommendations for primary regulators and Congress, as well as council-specific action.
- Developing and implementing a comprehensive financial data strategy. The data strategy should focus on closing current gaps, including for data on repurchase agreements and securities lending, structured financial products and private funds. The strategy should also identify and address emerging gaps such as climate risk and fintech.
“A properly functioning FSOC is more important than ever,” said Gelzinis, an associate director of Economic Policy at CAP. “Today’s meeting is an important opportunity for the FSOC to begin to undo the harm caused by the Trump administration over the past four years and start to set an agenda that builds a safer and more secure financial system. It is encouraging that the FSOC will focus on the intersection of the climate crisis and the financial system at this meeting. Climate change is one of the biggest threats to our long-term financial stability, and because of the previous administration’s unwillingness to address it, U.S. regulators are lagging behind their foreign counterparts on this issue—leaving the U.S. financial system overly exposed to climate shocks.”
Read: “5 Priorities for the Financial Stability Oversight Council” by Gregg Gelzinis
For more information or to speak to an expert, contact Julia Cusick at gro.ssergorpnacirema@kcisucj.