The Financial Stability Oversight Council — the federal agency in charge of keeping the U.S. financial system upright — wants to change a 2019 document that limits how it tries to keep problems at life insurers, money market funds, cryptocurrency firms and other nonbank financial companies from destroying the economy.
FSOC announced Friday that it’s proposing a new version of the document that would free it from the 2019 restrictions.
FSOC started a fight with life insurers and their regulators by designating companies such as MetLife and Prudential Financial as “systemically important financial institutions,” or companies needing extra oversight.
Life insurers argued that the SIFI designation process was unclear, arbitrary and unfair.
MetLife sued FSOC over its SIFI designation. A federal appeals court threw out MetLife’s designation in 2018.
FSOC withdrew the last designation of a nonbank company — Prudential Financial — in October 2018.
FSOC says it needs more flexibility to address potential risks as early and as quickly as possible, and that comparing the potential benefits of focusing attention on a nonbank company to the potential impact on the company is not useful.
“This is in part because it is not feasible to estimate with any certainty the likelihood, magnitude or timing of a future financial crisis,” FSOC said. FSOC argued that, if it does prevent a financial crisis, it would save the country trillions of dollars.
FSOC noted that it consults with state regulators and federal regulatory agencies regularly, and that its own members are made up mostly of state and federal agency heads.
“The council expects that most potential risks to financial stability will continue to be addressed by existing regulators rather than by use of the council’s nonbank financial company designation authority,” FSOC said.
Author(s): Allison Bell
Publication Date: 24 Apr 2023
Publication Site: Think Advisor