The Financial Stability Oversight Council Annual Reports report on the activities of the Council, describe significant financial market and regulatory developments, analyze potential emerging threats, and make certain recommendations.
The Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act) required the Financial Stability Oversight Council (Council) to submit a report to Congress regarding a study on the feasibility, benefits, costs, and structure of a contingent capital requirement for nonbank financial companies supervised by the Board of Governors of the Federal Reserve System (Federal Reserve) and for large, interconnected bank holding companies (BHCs). This report addresses statutory mandates for the study through a review of the types and structures of contingent capital instruments and consideration of the potential benefits from and drawbacks of the use of contingent capital, including its potential to enhance the safety and soundness of nonbank financial companies supervised by the Federal Reserve and large, interconnected BHCs. In conclusion, the Council recommends that contingent capital instruments remain an area for continued private sector innovation, and encourages the Federal Reserve and other financial regulators to continue to study the advantages and disadvantages of including contingent capital and bail-in instruments in their regulatory capital frameworks.
The National Credit Union Authority Clarification Act (the Act) required the Comptroller General of the United States (GAO) to conduct a study of the National Credit Union Administration’s (NCUA) supervision of corporate credit unions and implementation of prompt corrective action (PCA). The Act further required that the Financial Stability Oversight Council submit a report to Congress on actions taken in response to the GAO report, including any recommendations issued to the NCUA under section 120 of the Dodd-Frank Act.
This report discusses the findings and recommendations of the GAO study, and outlines NCUA activities that relate to the GAO’s recommendations, including the NCUA’s: (1) continued evaluation of alternative approaches to PCA and the early identification of potentially troubled credit unions, and (2) maintenance of a robust process for the accurate and transparent valuation of the securities underlying the NCUA guaranteed notes backed by legacy assets of the failed corporate credit unions, and of the range of total potential corporate resolution costs.
The Dodd-Frank Act required the Council to submit a report to Congress regarding the implementation of prompt corrective action (“PCA”) by the Federal banking agencies. More specifically, section 202(g)(4) of the Dodd-Frank Act requires the Council to issue a report on actions taken in response to the GAO study required by section 202(g)(1) of the Dodd-Frank Act. This report discusses the existing PCA framework and the findings and recommendations of the GAO study. It also highlights some lessons learned from the financial crisis and outlines actions taken that could affect PCA, as well as additional steps to modify the PCA framework that could be considered.
Section 215 of the Dodd-Frank Act required the Council to conduct a study evaluating the importance of maximizing United States taxpayer protections and promoting market discipline with respect to the treatment of fully secured creditors in the utilization of the orderly liquidation authority authorized by the Dodd-Frank Act.
As mandated by the Dodd-Frank Act, the Council conducted a study on how best to implement Section 619 of the Act (commonly known as the “Volcker Rule”), which is designed to improve the safety of our nation’s banking system by prohibiting proprietary trading activities and certain private fund investments. The Council’s study puts forward recommendations designed to effectively and comprehensively implement the Volcker Rule in a manner that constrains risk-taking by, and promotes the safety and soundness of, banking entities.
Section 622 of the Dodd-Frank Act established a financial sector concentration limit that prohibits a financial company from merging or consolidating with, or acquiring, another company if the resulting company’s consolidated liabilities would exceed 10 percent of the aggregate consolidated liabilities of all financial companies. This concentration limit is intended, along with a number of other provisions in the Dodd-Frank Act, to promote financial stability and address the perception that large financial institutions are “too big to fail.” As required by the Dodd-Frank Act, the Council completed a study of the extent to which the concentration limit would affect: financial stability, moral hazard in the financial system, the efficiency and competitiveness of U.S. financial firms and financial markets, and the cost and availability of credit and other financial services to households and businesses in the United States. The study also contains the Council’s recommendations regarding modifications to the concentration limit to mitigate practical difficulties likely to arise in its administration and enforcement, without undermining its effectiveness in limiting excessive concentration among financial companies. These recommendations were issued for public comment on regulations.gov. A docket folder summary can be found by searching for Docket ID: FSOC-2011-0002 and clicking on the Docket ID link from the search results.