A member of Congress is demanding that the New York Federal Reserve Bank share with him any information provided by the Bank to members of the Financial Stability Oversight Council (FSOC) regarding the process of designating non-banks as systemically important financial institutions (SIFI). In his letter, Rep. Scott Garrett, R-N.J., noted that while the NY Fed "is not formally included" as a member of the FSOC, it acts as a resource in providing financial data to FSOC members regarding financial industries and companies the FSOC is eyeing as potential threats to the financial system and potential SIFI designees.
The letter was written to William C. Dudley, president of the Federal Reserve Bank of New York. Rep. Scott Garrett wrote the letter as chairman of the Capital Markets Subcommittee of the House Financial Services Committee (FSC).
A spokesman for the NY Fed acknowledged that the agency had received the letter, but declined further comment.
Garrett is acting on behalf of insurance companies, mutual funds and money managers who have been informed by the FSOC that they are under scrutiny for possible designation as SIFIs. They are also voicing deep concern about how such a designation would have a substantial negative impact on their business.
Citing the recent annual report of the FSOC, securities analysts also note that the FSOC is taking a hard look at mortgage servicers and mortgage REITs for possible designation as SIFIs.
The bill's immediate impact would likely be on the designation of MetLife as a systemically significant financial institution or SIFI. MetLife is in Stage III, or the final stage, of the SIFI designation process. MetLife has been lobbying against designation as a SIFI for more than a year, and the FSOC has responded by slowing its decision-making process on MetLife to ensure it has all its ducks in a row before making a decision.
The FSOC already has designated three non-banks — American International Group, General Electric Capital Corp. and Prudential Financial, Inc. — as SIFIs.
In his letter, Garrett asked Dudley that the NY Fed provide him with "any document, research report, chart or other material that you or Fed NY staff have presented to members or staff of the FSOC, or any of its member agencies, or the Financial Stability Board, or any of its members, or other personnel, in relation to the potential designation of firms as SIFIs." Garrett's request is consistent with legislation reported out by the FSC June 20 that would effectively shut down the operations of the FSOC for at least the next year.
One bill, H.R. 4881, would bar the FSOC from designating any financial institution as systemically significant for a year.
The other bill, H.R. 4387, would allow all members of the commissions and boards represented on the FSOC — such as the Securities and Exchange Commission, the Federal Reserve, the Commodity Futures Trading Commission, and the National Credit Union Administration — to attend and participate in the FSOC's meetings. The bill also requires that before the principal of a Commission or Board represented on the FSOC votes as an FSOC member on an issue before the FSOC, the Commission or Board must vote on the issue, and the principal must follow that vote at the FSOC meeting. The bill also permits House FSC members to attend all FSOC meetings, whether or not the meeting is open to the public.
