FSOC’s Proposed Guidance on Nonbank Designations Undermines its Ability to Address Systemic Risk - CleanTechnica

WASHINGTON, D.C. — If a proposal by the Financial Stability Oversight Council (FSOC) is implemented, the Council will erode its authority to protect the financial system from large nonbank financial companies like insurance companies, nonbank mortgage lenders, and private equity and credit firms, according to documents submitted today by Public Citizen, Americans for Financial Reform Education Fund, and Sierra Club.

In the 2000s, several large and interconnected firms, including insurance giant AIG, contributed to the destabilization of the financial system and triggered a global economic crisis. In response, Congress established the Financial Stability Oversight Council and gave it authority to designate nonbank financial companies (NFCs) as systemically important, placing them under enhanced federal regulatory supervision. The Council’s proposed guidance seeks to weaken its designation authority.

In their comment, Public Citizen, Americans for Financial Reform Education Fund, and Sierra Club argue that eroding FSOC’s designation authority increases the likelihood that threats to U.S. financial stability—including threats from climate change—will go unaddressed. The move emboldens NFCs to increase risk taking by removing the specter of enhanced supervision and risks putting the public on the hook for firm bailouts.