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Financial Stability Oversight Council

June 27, 2017
Financial Regulation Reform Tracker

Congress and the Trump Administration may be embarking on making far-reaching changes that will recalibrate the manner in which financial services are regulated in the United States, including amending the Dodd-Frank Act and its implementing rules. We expect to see vigorous debate regarding the appropriate approach to financial services regulation, leading to rewrites of the structures and goals of federal banking and securities agencies and other government agencies.

This page is dedicated to tracking legislative and regulatory developments related to the FSOC.

For more information, please contact David L. Ansell, David J. Harris or Robert J. Rhatigan.

Return to the Financial Reform Tracker homepage » 

Legislation

Date

5/26/2017

Action

Protecting the Independent Funding of the Office of Financial Research Act (H.R. 2750)

Sponsor: Rep. Foster (D-IL) (Co-Sponsor – 1 D)

Key Provisions

The Bill would authorize the Director of the Office of Financial Research (“OFR”) to establish an annual budget for the OFR not less than its budget for FY 2017 subject to annual increases pursuant to a specified index. The Bill would provide that funding structure established under Dodd-Frank will not be subject to review by the House of Representatives and Senate Appropriations Committees. It would also disclaim any intention to authorize the Treasury Secretary to influence the budget or the number or compensation of employees of the OFR.

Potential Impact

The Bill is intended to provide increased independence of the OFR from both Congress and the Treasury Secretary. 

Important Links

Bill Text

Date

3/22/2017

Action

Financial Institution Bankruptcy Act  of 2017 (H.R. 1667)

Sponsor: Rep. Marino (R-PA) (4 Co-Sponsors – 2 R, 2 D)

House of Representatives passed by voice vote on April 5, 2017

Key Provisions

The Bill would establish a special resolution regime under a new subchapter of Chapter 11 of the Bankruptcy Code for bank holding companies and nonbank financial companies with at least $50 billion of assets (excluding stock brokers, commodity dealers, insurance companies and a range of depository institutions). It would authorize the formation of a bridge company to which certain assets and liabilities of the debtor could be transferred if a court found, among other things, that it was necessary to prevent serious adverse effects on financial stability in the U.S. The equity of the debtor would not be transferred to the bridge company and generally, the bridge company would not assume the debtor’s liabilities. The equity securities of the bridge company would be held by a special trustee and the proceeds of any sale of such securities would be held in trust pending distribution under an approved plan. The Act would entitle the FRB, SEC, OCC, CFTC and FDIC to be heard on any issue arising in a proceeding under the subchapter.

Potential Impact

The Bill would create an alternative to the Orderly Liquidation Authority provisions contained in Title II of the Dodd-Frank Act, which authorize the Secretary of the Treasury under extraordinary circumstances to appoint the FDIC as receiver for certain nonbank financial institutions under rules and procedures similar to the ones that apply to the receivership of an FDIC-insured depository institution. The Financial CHOICE Act, which was approved by the House Financial Services Committee in September 2016, contained provisions substantially identical to the Bill, but would have taken the additional step of repealing Title II.

Important Links

House Bill Text

Date

3/9/2017

Action

Financial Stability Oversight Council  Reform Act (H.R. 1459)

Sponsor: Rep. Emmer (R-MN)

Key Provisions

Under current law the operations of FSOC are funded by assessments on bank holding companies with assets of $50 billion or more and SIFIs without action by Congress. The Act would subject FSOC to the regular Congressional appropriations process.  The Act would also impose new requirements on the Office of Financial Research, including a mandate to publish for public comment an annual work plan for the Office.

Potential Impact

The activities of the FSOC have been the subject of significant Congressional interest. The change, if enacted, would provide Congress with enhanced control over the Council.

Important Links

Bill Text

Executive Actions

Date

4/21/2017

Action

Presidential Memorandum for the Secretary of the Treasury (Secretary) regarding the Financial Stability Oversight Council (FSOC)

Key Provisions

The Secretary is directed to review the process under which the FSOC designates entities either as systemically important financial institutions (SIFIs) or as financial market utilities (FMUs). The review, among other things, is to consider whether the process: (i) is sufficiently transparent, (ii) provides adequate due process, (iii) gives market participants the expectation the Government will shield SIFIs and FMUs from bankruptcy, and (iv) should include evaluations of a nonbank financial company’s likelihood of material financial distress, and quantifiable projections of the damage that a nonbank financial company could cause to the U.S. economy if it is not designated as a SIFI.

The review is to include recommendations, if appropriate, for improvements in the FSOC’s process or for legislative changes.

The review is also to consider whether the SIFI and FMU designation processes are consistent with the February 3, 2017 Executive Order on Regulating the Financial System.

The review is to be completed within 180 days of the date of the Memorandum. During the review period, the Secretary is directed not to vote for any proposed non-emergency SIFI or FMU determinations, which would have the effect of preventing non-emergency proposed determinations.

Potential Impact

The Trump Administration questions the efficacy of SIFI designations and the process by which it happens. This is the first step toward the reconstruction or elimination of SIFI designations in favor of actions that may have a greater long-term impact on systemic safety.

At the same time, the FSOC’s SIFI designation process has been a subject of ongoing controversy, which, in part, led the FSOC to modify its procedures in 2015.

In April 2016 a U.S. District Court for the District of Columbia invalidated the FSOC’s decision to designate MetLife as a SIFI, finding that the FSOC had failed to follow its own rules in making the designation. See Dechert OnPoint, MetLife Opinion Turns the Tables on FSOC: Back to the Drawing Board. The court’s ruling is currently on appeal before the U.S. Court of Appeals for the D.C. Circuit. The appeal is in abeyance pending the Secretary's report.

Important Links

Presidential Memorandum on FSOC Text