What is the Financial Stability Oversight Council (FSOC) and what does it do?
The Financial Stability Oversight Council has a clear statutory mandate that creates for the first time collective accountability for identifying risks and responding to emerging threats to financial stability. It is a collaborative body chaired by the Secretary of the Treasury that brings together the expertise of the federal financial regulators, an independent insurance expert appointed by the President, and state regulators.
The Council has important new authorities to constrain excessive risk in the financial system. For instance, the Council has the authority to designate a nonbank financial firm for tough new supervision to help minimize the risk of such a firm from threatening the stability of the financial system.
Additionally, to help with the identification of emerging risks to financial stability, the FSOC can provide direction to, and request data and analyses from, the newly created Office of Financial Research (OFR) housed within Treasury.
How will the FSOC help maintain our nation’s financial stability?
Prior to the crisis, the U.S. financial regulatory framework focused narrowly on individual institutions and markets, which allowed supervisory gaps to grow and regulatory inconsistencies to emerge—in turn, allowing arbitrage and weakened standards. No single regulator had responsibility for monitoring and addressing overall risks to financial stability, which too often involve different types of financial firms operating across multiple markets leaving important parts of the system unregulated. The Dodd‐Frank Wall Street Reform and Consumer Protection Act addressed these problems through the creation of the FSOC, which is authorized to:
- Facilitate Regulatory Coordination: The Council has a statutory duty to facilitate information sharing and coordination among the member agencies regarding domestic financial services policy development, rulemaking, examinations, reporting requirements, and enforcement actions. Through this role, the Council will help reduce gaps and weaknesses within the regulatory structure, to promote a safer and more stable system.
- Facilitate Information Sharing and Collection: By statute, the Council has a duty to facilitate the sharing of data and information among the member agencies. In instances where available data proves insufficient, the Council has the authority to direct the OFR to collect information from certain individual financial companies in order to assess risks to the financial system. The collection and analysis of this data will aid the Council and OFR in their shared goal of removing blind spots within in the financial system and assisting regulators in identifying risks and other emerging threats.
- Designate Nonbank Financial Companies for Consolidated Supervision: In the run up to the financial crisis of 2008, some of the firms which posed the greatest risk to the financial system were not subject to tough consolidated supervision. The Dodd-Frank Act gives the Council the authority to require consolidated supervision of nonbank financial companies, regardless of their corporate form.
- Designate Systemic Financial Market Utilities and Systemic Payment, Clearing, or Settlement Activities: The Dodd-Frank Act authorizes the Council to designate financial market utilities that perform payment, clearing, or settlement activities as systemic, requiring them to meet prescribed risk management standards and heightened oversight by the Federal Reserve, the Securities and Exchange Commission, or the Commodities Futures Trading Commission.
- Recommend Stricter Standards: The Council has the authority to recommend stricter standards for the largest, most interconnected firms, including designated nonbank financial companies, as described above. Moreover, where the Council determines that certain practices or activities pose a threat to financial stability, the Council may make recommendations to the primary financial regulatory agencies for new or heightened regulatory standards.
- Break Up Firms that Pose a “Grave Threat” to Financial Stability: The FSOC has a significant role in determining whether action should be taken to break up those firms that pose a “grave threat” to the financial stability of the United States.
Who is the FSOC accountable to?
The Council provides new accountability to Congress and the American people by identifying emerging threats to financial stability and to coordinate regulatory actions to address them. The Council is held accountable to Congress through the publication of an annual report and testimony provided by the Chairperson on the FSOC’s activities and emerging threats to financial stability. Moreover, the Council reports to Congress as appropriate on particular topics. For instance, the FSOC was required to conduct four studies in its first six months following enactment, including a report providing recommendations on implementation of the Volcker Rule.
Will FSOC Meetings be open to the public?
The Council is committed to conducting its business in an open and transparent manner. The Council opens its meetings to the public whenever possible. At the same time, the central mission of the Council is to monitor systemic and emerging threats, which requires the discussion of supervisory and other market‐sensitive data, including information about individual firms, transactions and markets that may only be obtained if maintained on a confidential basis.
Protection of this information is necessary in order to prevent destabilizing market speculation that could occur if that information were to be disclosed. Accordingly, the Council has published a transparency policy that enumerates the reasons that the Chairperson may close a meeting, in whole or in part.
How does FSOC operate?
The Council operates under a committee structure to promote shared responsibility among the member agencies and to leverage the expertise that already exists at each agency. The Council forms committees around its various statutory responsibilities and core issues that relate closely to risks where more than one agency has a significant interest.
The Council also maintains a small, independent staff to provide advice on statutory authorities and obligations, and to manage its document flow, records retention, and public records disclosure. This staff also includes policy experts to help coordinate the work of the committees and, where appropriate, complex inter‐agency rule makings, to support Council functions such as designations, and to draft reports to Congress.
Who serves on the FSOC?
The Council is made up of ten voting members and five nonvoting members.
The voting members are:
- the Secretary of the Treasurywho serves as the Chairperson of the Council;
- the Chairman of the Board of Governors of the Federal Reserve System;
- the Comptroller of the Currency (OCC);
- the Director of the Bureau of Consumer Financial Protection (CFPB);
- the Chairman of the Securities and Exchange Commission (SEC);
- the Chairperson of the Federal Deposit Insurance Corporation (FDIC);
- the Chairperson of the Commodity Futures Trading Commission (CFTC);
- the Director of the Federal Housing Finance Agency (FHFA);
- the Chairman of the National Credit Union Administration (NCUA);and
- an independent member with insurance expertise who is appointed by the President and confirmed by the Senate for a six-year term.
The nonvoting members, who serve in an advisory capacity, are:
- the Director of the Office of Financial Research;
- the Director of the Federal Insurance Office;
- a state insurance commissioner designated by the state insurance commissioners;
- a state banking supervisor designated by the state banking supervisors; and
- a state securities commissioner(or officer performing like functions) designated by the state securities commissioners.
The state insurance commissioner, state banking supervisor, and state securities commissioner serve two-year terms.
What is FSOC’s committee structure?
The FSOC operates under a committee structure to promote shared responsibility among the member agencies and to leverage the expertise that already exists at each agency. The FSOC forms committees around its various statutory responsibilities and core issues that relate closely to financial system risks where more than one agency has a significant interest. For information on each committee, please see the Council’s committee charters.
Where can I find more information about FSOC member agencies?
For information on each member agency’s Dodd-Frank Act activities, please see the links below.
- Board of Governors of the Federal Reserve System
- Commodity Futures Trading Commission
- Federal Deposit Insurance Corporation
- Federal Housing Finance Agency
- National Credit Union Administration
- Office of the Comptroller of the Currency
- Securities and Exchange Commission
- Treasury Department
- Consumer Financial Protection Bureau