The House Financial Services Committee is moving to effectively shut down the operations of the Federal Stability Oversight Council (FSOC) for at least six months. The panel has scheduled a vote Thursday on H.R. 4387, the FSOC Transparency and Accountability Act.
It would bar the FSOC from designating any financial institution as systemically significant for six months. It would also require the FSOC to allow members of the House Financial Services Committee and the Senate Banking Committee to attend all meetings, whether opened or closed. The vote on the bill was called for by Rep. Jeb Hensarling, R-Texas, chairman of the committee.
The 2014 FSOC annual report highlights the risks to the financial system posed by several nonbank financial services companies, which have continually drawn scrutiny from federal regulators. A moratorium on SIFI designations, as proposed by Hensarling, would undoubtedly alleviate the near-term regulatory concerns of these companies. However, analysts view the odds of this legislation passing as highly limited.
Lobbying in opposition to the bill has already been launched by the AFL-CIO, Americans for Financial Reform, and the Systemic Risk Council.
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, 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.
But, it would also impact money market mutual funds and money managers, who have been notified they are under scrutiny for possible designation as SIFIs. The analyst also cited a recent report which indicated that the FSOC is eyeing mortgage servicers and mortgage REITs for possible designation as SIFIs.
The FSOC already has designated three non-banks — American International Group, General Electric Capital Corp. and Prudential Financial, Inc. — as SIFIs. The spotlight turned on money managers last September when an FSOC report prepared by the Treasury Department's Office of Financial Research identified activities of 20 of the largest U.S. money managers as possible sources of risk.
