Dodd-Frank News Center

Financial Services Committee Republican staff reports on FSOC nonbank designation process

This story appeared in Bank Digest.

The Republican staff of the House Financial Services Committee has released a report entitled "The Arbitrary and Inconsistent FSOC Nonbank Designation Process," which contends that the Financial Stability Oversight Council acts inconsistently and arbitrarily in exercising its power to designate certain nonbank companies as "too big to fail." The report is based on documents requested by the committee nearly two years ago and the sworn testimony of Treasury Department officials.

According to a committee press release, the report details the non-public analysis associated with the FSOC's processes to designate certain firms as "systemically important financial institutions" and therefore "too big to fail." Committee Chairman Jeb Hensarling said, "The release of this staff report brings some much-needed transparency and oversight to FSOC, and the information contained in the documents clearly demonstrates the need for the accountability reforms Republican have proposed in the Financial CHOICE Act."

House votes to remove threshold for designating SIFIs

This story appeared in Bank Digest.

The House of Representatives has passed the Systemic Risk Designation Improvement Act (H.R. 6392), which is intended to better gauge and more accurately reflect the potential risks that financial institutions could pose to the economy. It would remove a threshold included in the Dodd-Frank Act under which a financial instruction is automatically designated as a systemically important financial institution if it has at least $50 billion in assets and would replace it with an evaluative process that takes into account factors other than size, including complexity and interconnectedness. The House voted to approve the bill by a vote of 254-161.

House Majority Leader Kevin McCarthy (R-Calif) said the threshold "is a prime example of the arbitrariness" of the Dodd-Frank Act and that the bill "fixes one of the many overreaching errors in Dodd-Frank so we can actually protect the American people from future financial crises."

In contrast, House Financial Services Committee Ranking Member Maxine Waters (D-Calif) called the bill "the first step in the Trump agenda to deregulate Wall Street, despite candidate Trump's pledges to hold elite bankers accountable."

Brown issues statement on MetLife's challenge of its SIFI designation

This story appeared in Bank Digest.

Senate Banking Committee Ranking Member Sherrod Brown (D-Ohio) has issued a statement regarding MetLife Inc.'s challenge of its designation by the Financial Stability Oversight Council as a systemically important financial institution, on which the U.S. Court of Appeals for the District of Columbia Circuit was scheduled to hear oral arguments. Brown said the FSOC was created "so U.S. taxpayers are never again forced to bail out 'too-big-to-fail' financial companies" and that "actions that could undermine or hamstring that important oversight mission--whether by a court or by Congress--are steps in the wrong direction."

Agencies issue report on permissible banking activities and investments

This story appeared in Bank Digest.

The Federal Reserve Board, Federal Deposit Insurance Corporation, and Office of the Comptroller of the Currency have released a report to Congress and the Financial Stability Oversight Council on the activities and investments that banking entities may engage in under applicable law. The Dodd-Frank Act required the agencies to conduct a study and report to Congress on the types of activities and investments permissible for banking entities, the associated risks, and how banking entities can mitigate those risks.

 According to the agencies' joint release, each agency prepared the section of the report relative to the banking entities that it supervises, and each of the report's three sections includes a discussion of permissible activities, risk mitigation, legal limitations, and specific recommendations.

 In a press release, Senate Banking Committee Ranking Member Sherrod Brown (D-Ohio) commended the agencies for recommending that Congress limit Wall Street's investments in merchant banking and physical commodities. Brown said the recommendations "are welcome news for consumers, taxpayers, and manufacturers, and for the safety and soundness of our financial system."

Waters and Brown issue statement on removal of GE Capital's SIFI designation

This story appeared in Bank Digest.

House Financial Services Committee Ranking Member Maxine Waters (D-Calif) and Senate Banking Committee Ranking Member Sherrod Brown (D-Ohio) have issued a statement regarding the Financial Stability Oversight Council's decision (see 2016 No. 2216) to rescind the designation of GE Capital Global Holdings, LLC, as a systemically important financial institution. The Council rescinded GE Capital's designation for stricter oversight after the firm made changes to reduce its threat to financial stability

In their statement, Waters and Brown said that the Council "is working just as Wall Street Reform intended: to protect working Americans from once again bailing out 'too-big-to fail' institutions. Any legislative or legal actions to hamstring that essential oversight mission could threaten our ability to address risky Wall Street practices in the future, leaving taxpayers and our economy exposed to another crisis."

FSOC provides update on financial stability risks from asset management products and activities

This story appeared in Bank Digest.

The Financial Stability Oversight Council has released a statement that provides a public update on its review of potential risks to U.S. financial stability that may arise from asset management products and activities. According to a Treasury Department press release, the statement describes the FSOC's views regarding potential financial stability risks and next steps to respond to these potential risks, and it focuses on the areas of liquidity and redemption, leverage, operational functions, securities lending, and resolvability and transition planning.

The FSOC voted unanimously to release the statement at its April 18 meeting, at which Treasury Secretary Jacob Lew spoke. In his prepared remarks, Lew highlighted findings in the Council's statement regarding liquidity and leverage risk. On liquidity, he said that "the Council's analysis indicates that financial stability concerns may arise from liquidity and redemption risks in pooled investment vehicles, and in particular in mutual funds, and we have laid out a number of important policy steps that should be considered, including robust liquidity management practices and disclosures for mutual funds, as well as clearer guidelines limiting a fund's ability to hold assets with very limited liquidity."

Regarding leverage, Lew said that "we have not come to any conclusions yet that the use of leverage by private funds currently presents financial stability risks." He went on to say that "the use of leverage in the financial system has come down dramatically since the crisis" overall but said that there was a "need for further analysis and information sharing" on issues related to leverage.

House passes bills to reform FSOC, raise consolidated assets threshold

This story appeared in Bank Digest.

The House of Representatives has passed H.R. 3340 (the Financial Stability Oversight Council Reform Act), which would make the FSOC and the Office of Financial Research subject to the normal and transparent appropriations process, among other provisions, and H.R. 3791, which would raise the consolidated assets threshold under the small banking holding company policy statement.

H.R. 3340 passed the House 239-179, and H.R. 3791 passed by a vote of 247-171. Both bills had passed the Financial Services Committee last year.

Fed and FDIC announce determinations on institutions' resolution plans

This story appeared in Bank Digest.

The Federal Reserve Board and the Federal Deposit Insurance Corporation have made determinations and provided firm-specific feedback on the 2015 resolution plans of eight systemically important domestic banking institutions, according to a joint press release issued by the agencies. The resolution plans are required of certain companies under the Dodd-Frank Act and should describe each company's strategy for rapid and orderly resolution under bankruptcy in the event of material financial distress or failure of the company.

The agencies jointly determined that the resolution plans of several companies were not credible or would not facilitate an orderly resolution under the U.S. Bankruptcy Code. The agencies issued joint notices of deficiencies to these firms, and the companies must remediate the deficiencies by October 1, 2016.

According to the release, the deadline for the next full plan submission for all eight domestic systemically important financial institutions is July 1, 2017. The Fed and the FDIC have issued "Resolution Plan Assessment Framework and Firm Determinations (2016)," which explains the resolution planning requirement and provides additional information on both the agencies' determinations and their processes for reviewing the plans. In addition, the agencies have issued new guidance for the July 2017 resolution plan submission of all firms.

The Fed has also released the feedback letters issued to each firm:

• Bank of America Corporation
• The Bank of New York Mellon Corporation
• Citigroup Inc.
• The Goldman Sachs Group, Inc.  
• JPMorgan Chase & Co.
• Morgan Stanley
• State Street Corporation
• Wells Fargo & Company

FSOC releases meeting readout

This story appeared in Bank Digest.

The Financial Stability Oversight Council has made available a readout of its March 21, 2016, meeting, which was conducted via telephone. According to the readout, the FSOC discussed its ongoing assessment of potential risks to U.S. financial stability from asset management products and activities, including a discussion regarding potential financial stability risks related to liquidity and redemption risks and risks associated with the use of leverage by asset management vehicles. The FSOC noted that it expects to provide a public update on its analysis this spring.

FSOC releases meeting minutes

This story appeared in Bank Digest.

The FSOC has made available the minutes of its Nov. 2, 2015, meeting and a readout of its Dec. 17, 2015, meeting. A press release stated that during the Dec. 17, 2015, meeting, the FSOC discussed its second annual review of its designation of Prudential Financial, Inc., for enhanced prudential standards and supervision by the Federal Reserve Board. After the meeting, the FSOC voted by notational vote not to rescind the designation and provided the company and certain of its regulators with a notice explaining the primary bases for the Council’s decision not to rescind the designation.