2023-04-21 22:05:37
© Reuters. US Treasury Secretary Janet Yellen 5/12/2022 Graeme Jennings/Pool via REUTERS
By David Lawder
WASHINGTON (Reuters) – The Financial Stability Oversight Board (FSOC) on Friday proposed guidelines to facilitate the designation of non-bank financial institutions for regulatory oversight and new procedures to better identify and respond to system risks. financial.
The multi-regulatory board tasked with overseeing stability risks in the financial system released proposals for public contributions just over a month after two regional bank failures posed the biggest threat of contagion since the 2008 financial crisis.
US Treasury Secretary Janet Yellen has raised concerns about non-bank financial institutions including hedge funds, private equity firms and pension funds as a potential source of financial instability due to a lack of oversight.
She said in remarks to the board meeting that the banking system remains sound, but “we remain vigilant and monitor conditions closely.”
But the turmoil in the banking sector has shown that the work of financial regulators is “not done” and that regulatory and supervisory changes are needed “to help prevent financial turmoil from starting and spreading,” Yellen said.
The FSOC – chaired by Yellen and which includes Federal Reserve Chair Jerome Powell and the heads of other major financial regulators – was given the ability to designate non-bank companies as systemically important, but that became more difficult in 2019 with the changes made under the Trump administration.
Yellen said the new guideline removes some “inappropriate obstacles” to designating non-bank companies, making the process take up to six years.
These will be replaced by a quantitative and qualitative review process under which the board determines whether “the company’s material financial difficulties or the company’s activities may pose a threat to US financial stability,” a Treasury official said.
The new guidance removes the requirement that the FSOC consider a company’s likelihood of problems and conduct a cost-benefit analysis of each assignment. But it does allow for substantial communication and engagement with companies under review for designations.
The new guidance is a “substantial improvement. It has important attributes of being clear, credible, balanced and consistent,” said National Credit Union Administration President Todd Harper.
A US Treasury official told reporters, however, that the new guideline is not a full return to the original 2012 rules established by the Dodd-Frank financial reform act.
(Reporting by David Lawder)
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