June 27 -- Comment period extended to July 27, 2023.
-- Analytic Framework for Financial Stability Risk Identification, Assessment, and Response
https://www.federalregister.gov/d/2023-13548
-- Authority to Require Supervision and Regulation of Certain Nonbank Financial Companies
https://www.federalregister.gov/d/2023-13648
1) Apr 21 [press release] -- The Financial Stability Oversight Council (Council) today voted unanimously to issue for public comment a proposed analytic framework for financial stability risks. This new framework is intended to provide greater transparency to the public about how the Council identifies, assesses, and addresses potential risks to financial stability, regardless of whether the risk stems from activities or firms.
The Council also voted unanimously to issue for public comment new proposed interpretative guidance on the Council’s procedures for designating nonbank financial companies for Federal Reserve supervision and enhanced prudential standards. This proposed guidance would replace the Council’s existing guidance and describes the procedural steps the Council would take in considering whether to designate a nonbank financial company. . . .
The actions proposed today by the Council would:
-- Enhance the Council’s ability to address financial stability risks. The financial system continues to evolve, and past crises have shown the importance of being able to act decisively to address risks to financial stability before they destabilize the system. The new proposed guidance would help ensure that the Council can use all of its statutory authorities as appropriate to address risks to U.S. financial stability, regardless of the source of those risks.
-- Provide transparency to the public on how the Council performs its duties. For the first time, the Council is proposing to issue a framework broadly explaining how it identifies, evaluates, and responds to potential risks to U.S. financial stability, whether they come from activities, individual firms, or otherwise. This framework outlines common vulnerabilities and transmission channels through which shocks can arise and propagate through the financial system. It also explains how the Council considers the tools it will use to address these risks.
-- Ensure a rigorous and transparent designation process. The proposed nonbank financial company designations guidance would continue to provide strong processes, including significant two-way engagement with companies under review. These processes would minimize administrative burdens on companies under review while providing ample opportunities to be heard and to understand the Council’s analyses. Further, the separate proposed analytic framework explains how nonbank financial company designations fit into the Council’s broader approach to financial stability risk monitoring and mitigation.
Summary fact sheet of proposed analytic framework
https://home.treasury.gov/system/files/261/FSOC-2023-Risk-Framework-Fact-Sheet.pdf
Summary fact sheet of proposed nonbank financial company designations guidance
https://home.treasury.gov/system/files/261/FSOC-2023-Nonbanks-Guidance-Fact-Sheet.pdf
Secretary Yellen’s remarks during the Council’s open session
https://home.treasury.gov/news/press-releases/jy1431
The two proposals will be available for a 60-day public comment period following their publication in the Federal Register. [see below]
Press release:
https://home.treasury.gov/news/press-releases/jy1432
2) Apr 28 -- Analytic Framework for Financial Stability Risk Identification, Assessment, and Response
The Financial Stability Oversight Council (Council) is proposing to adopt an analytic framework that describes the approach the Council expects to take in identifying, assessing, and responding to certain potential risks to U.S. financial stability. Comment due date: June 27, 2023.
Section 111 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) established the Financial Stability Oversight Council (Council), and section 112 sets forth its duties and purposes, which include identifying risks to U.S. financial stability and responding to emerging threats to the stability of the U.S. financial system.
The proposed Analytic Framework for Financial Stability Risk Identification, Assessment, and Response (Proposed Analytic Framework) describes the approach the Council expects to take in identifying, assessing, and responding to certain potential risks to U.S. financial stability. The Proposed Analytic Framework is not a binding rule, and does not establish rights or obligations applicable to any person or entity, but is intended to help market participants, stakeholders, and other members of the public better understand how the Council expects to perform certain of its duties.
The Council seeks public comment on any aspect of the Proposed Analytic Framework, including the following questions: . . .
FRN:
https://www.federalregister.gov/d/2023-08969
3) Apr 28 -- Authority To Require Supervision and Regulation of Certain Nonbank Financial Companies -- Proposed Interpretive Guidance
This proposed interpretive guidance, which would replace the Financial Stability Oversight Council's existing interpretive guidance on nonbank financial company determinations, describes the process the Council intends to take in determining whether to subject a nonbank financial company to supervision and prudential standards by the Board of Governors of the Federal Reserve System. Comment due date: June 27, 2023.
The Dodd-Frank Act gives the Council broad discretion to determine how to respond to potential threats to U.S. financial stability, and the Council uses each of its statutory authorities as appropriate. The Council's duties under section 112 of the Dodd-Frank Act reflect the range of approaches the Council may consider, including collecting information from regulators, requesting data and analyses from the Office of Financial Research, monitoring the financial services marketplace and financial regulatory developments, facilitating information sharing and coordination among regulators, recommending to the Council member agencies general supervisory priorities and principles, identifying regulatory gaps, making recommendations to the Board of Governors of the Federal Reserve System (“Federal Reserve”) or other primary financial regulatory agencies, and designating certain entities or payment, clearing, and settlement activities for additional regulation.
Section 113 of the Dodd-Frank Act authorizes the Council to determine that a nonbank financial company will be subject to supervision by the Federal Reserve and prudential standards. Under section 165 of the Dodd-Frank Act, the Federal Reserve is responsible for establishing the prudential standards that will be applicable to a nonbank financial company subject to a Council designation under section 113. The Council has previously issued rules, guidance, and other public statements regarding its process for evaluating nonbank financial companies for a potential designation. . . .
The Council is proposing this interpretive guidance (the “Proposed Guidance”) to revise and update the 2019 Interpretive Guidance. If the Council issues final interpretive guidance based on this proposal, the final interpretive guidance will replace the 2019 Interpretive Guidance, found at Appendix A to 12 CFR part 1310, in its entirety but will not modify the rules at 12 CFR 1310.1–23. . . .
The Proposed Guidance seeks to establish a durable process for the Council's use of its authority to designate nonbank financial companies. The 2012 Interpretive Guidance provided a crucial framework for the Council's analyses, but because it was adopted before the Council had designated any nonbank financial companies, it could not reflect the lessons learned from engaging in such designations. The 2019 Interpretive Guidance provided additional clarity regarding the Council's procedures but created inappropriate hurdles to the Council's ability to use this authority. Congress created the designation authority to fill a glaring regulatory gap that became apparent during the financial crisis in 2007–09, when financial distress at large, complex, highly interconnected, highly leveraged, and inadequately regulated nonbank financial companies devastated the financial system. The Council has used this authority sparingly, but to mitigate the risks of future financial crises, the Council must be able to use each of its statutory authorities as appropriate to address potential threats to U.S. financial stability. The Proposed Guidance is intended to make this authority available to the Council while maintaining rigorous procedural protections for nonbank financial companies that may be reviewed for potential designation.
The Proposed Guidance would make three key changes. First, the Proposed Guidance would eliminate the statement, found in the 2019 Interpretive Guidance, that the Council would first rely on federal and state regulators to address risks to financial stability before the Council would begin to consider a nonbank financial company for potential designation. The 2019 Interpretive Guidance refers to the Council's reliance on existing regulators as an “activities-based approach,” and provides that the Council will prioritize that approach before considering designations. . . .
The second fundamental change under the Proposed Guidance is that it is limited to the Council's procedures—rather than substantive analyses—related to nonbank financial company designations. . . .
The third primary change under the Proposed Guidance, related to its focus on the Council's procedures rather than substantive analyses, is that the Proposed Guidance does not include language, found in the 2019 Interpretive Guidance, stating that the Council would conduct a cost-benefit analysis and an assessment of the likelihood of a firm's material financial distress prior to making a determination under section 113. . . .
FRN:
https://www.federalregister.gov/d/2023-08964