10:25 pm - Monday December 18, 2017

DFA and Financial Stability Oversight Council

As established under the Dodd-Frank Act, the Financial Stability Oversight Council (FSOC) will provide, for the first time, comprehensive monitoring to ensure the stability of financial system in US.

The Council is charged with identifying threats to the financial stability of the United States; promoting market discipline; and responding to emerging risks to the stability of the United States financial system. The Council consists of 10 voting members and 5 nonvoting members and brings together the expertise of federal financial regulators, state regulators, and an insurance expert appointed by the President.

The Financial Stability Oversight Council (FSOC) has a clear statutory mandate that creates for the first time collective accountability for identifying risks and responding to emerging threats to financial stability. The FSOC has important new authorities to constrain excessive risk in the financial system. For instance, the FSOC has authority to designate a non bank financial firm for tough new supervision and therefore avoid the regulatory gaps that existed before the recent crisis. Closing these gaps in supervision will help minimize the risk of a non bank financial firm 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.

The FSOC has a statutory duty to facilitate information sharing and coordination among the member agencies regarding domestic financial services policy development, rule making, examinations, reporting requirements, and enforcement actions. Through this role, the FSOC will help eliminate gaps and weaknesses within the regulatory structure, to promote a safer and more stable system. By statute, the FSOC has a duty to facilitate the sharing of data and information among the member agencies. In instances where the data available proves insufficient, the FSOC has the authority to direct the OFR to collect information from certain individual financial companies to assess risks to the financial system, including the extent to which a financial activity or financial market in which the financial company participates, or the financial company itself, poses a threat to the financial stability of the United States. The collection and analysis of this data will aid the FSOC and OFR in their shared goal of removing blind spots in the financial system so that regulators will be more able to see the entire landscape and be better equipped to identify systemic risks and other emerging threats.

The FSOC has the authority to recommend stricter standards for the largest, most interconnected firms, including non banks, designated by the FSOC for Federal Reserve supervision. Moreover, where the FSOC determines that certain practices or activities pose a threat to financial stability, the FSOC may make recommendations to the primary financial regulatory agencies for new or heightened standards.

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