Kress, Patricia A. Timothy F. MetLife, Inc. Financial Stability Oversight Council , brief of amici curiae, current and former members of Congress in support of defendant-appellant, No.
John C. In the past, cost-benefit analyses have provided financial sector actors another element of the rule-making process to contest in court. See, for example, Bus. Roundtable v. SEC , F. Martin J. Some argue that ETF share prices provided an up-to-date reflection of the actual price of the underlying less-liquid assets and served as a price-discovery vehicle during the market stress. Kothrari and others. Investors who redeem their shares first will get the most value, since the fund will sell the easy-to-sell assets first.
As more investors redeem their shares, the fund will have to resort to selling off more illiquid assets at fire-sale prices, decreasing the overall value of the fund. This leaves remaining investors worse off and creates a vicious feedback loop triggering more investor redemptions. Swing pricing is one policy that has been implemented internationally to mitigate the incentive to redeem first. Daniel K. Redesigning the U. Hilary J. Peter Swire , Jordan Eizenga.
Peter Gordon Director, Government Affairs. Madeline Shepherd Director, Government Affairs. In this article. InProgress Stay updated on our work on the most pressing issues of our time. While there are many problems that the FSOC will need to address over the next several years, this report outlines five issues that should be top priorities: Restoring budget and staffing at the FSOC and the Office of Financial Research OFR Repealing the systemically important financial institution SIFI designation guidance Coordinating efforts to mitigate climate-related financial risks Addressing the long-standing shadow banking fragilities that were resurfaced by the COVID shock Developing and implementing a comprehensive financial data strategy.
Coordinate efforts to mitigate climate-related risks to the financial system. As Federal Deposit Insurance Corporation FDIC Board Member Martin Gruenberg, a former voting member of the FSOC, recently argued: Going forward, all of the federal financial regulatory agencies—the banking agencies and the market regulators—will have to engage proactively with the financial risks of climate change.
As Sheila Bair, former chair of the FDIC and a former FSOC voting member, recently stated: It is naive to think that somehow the financial system will remain immune to the inevitable economic losses that will ensue if there are no forceful efforts to identify and prevent them.
Develop and execute a comprehensive financial data strategy with the OFR. Three areas that should be at the top of the list include: Repurchase agreements and securities lending : Short-term wholesale funding markets played a significant role in the crisis.
Banks and nonbank financial companies alike relied heavily on the repo market for funding, leaving them vulnerable to runs and damaging fire sales when creditors pulled those short-term loans. Similarly, securities lending caused fire sales and severe losses at firms, including at AIG.
Regulators had very little data on these markets in the run-up to the crisis. As discussed earlier, repo markets again displayed fragility in March The OFR should carefully analyze the available data on derivatives, securitized products, and other complex financial instruments to identify and rectify any gaps. The focus on leveraged lending and collateralized loan obligations over the past several years provides a useful example.
The increase in the size of this market in the late s raised significant questions regarding regulatory data on the structure, terms, and ultimate bearers of the risk of these products. Private funds : After several years of growing leverage concentrated at the largest hedge funds, the FSOC Hedge Fund Working Group made five data-related recommendations in that would help policymakers better evaluate the financial stability risks posed by highly leveraged funds.
Private equity firms tend to use minimal leverage and derivatives at the fund level and do not typically rely on unstable sources of funding. But their activities create significant leverage for the financial and nonfinancial firms they control and build credit risk throughout the financial system.
In addition to these preexisting areas of concern, the financial data strategy should be forward-looking and identify emerging data gaps such as: Climate risk : Climate change poses serious risks to the stability of the financial system.
It is clear that regulators will need much better data on climate-related risks for institutions and markets under their jurisdiction. The OFR can help coordinate these efforts across regulators and address any financial stability-related gaps as appropriate.
Fintech : The emergence of new technologies in the financial system and the development of novel financial products, processes, and entities create both opportunities and risks.
The OFR should examine whether regulators need more granular data on a range of fintech-related issues, including cloud service provider interconnections, correlated exposures created by common algorithms utilized or offered by fintech companies, vulnerabilities in digital asset markets such as Bitcoin and stable coins , and more.
The voting members representing the eight federal financial regulators are the chair of the Federal Reserve, comptroller of the currency, director of the Consumer Financial Protection Bureau, chair of the Securities and Exchange Commission, chair of the Federal Deposit Insurance Corporation, chair of the Commodity Futures Trading Commission, director of the Federal Housing Finance Agency, and chair of the National Credit Union Administration.
In addition to the 10 voting members, the FSOC also includes five nonvoting members: the director of the Office of Financial Research, the director of the Federal Insurance Office, and representatives from state insurance, banking, and securities regulators.
The bylaws, however, can be amended with a majority vote of the voting members then serving. Once approved, Secretary Yellen could propose a supplemental budget that reverses the budget and staffing cuts implemented by the Trump administration.
One additional complication to this approach is that the final rule establishing the process for actually collecting assessments from SIFIs would also need to be amended through a rule-making process.
Currently, the fees assessed are collected on a biannual basis. The next scheduled assessment is in mid-September. It is unclear if there are any excess funds in the Financial Research Fund that could be used to cover the supplemental FSOC budget increase or if an adjustment to the assessment schedule would indeed be required to raise funds in advance of the FY budget and September assessment. Gregg Gelzinis Associate Director. You Might Also Like. Dec 7, Gregg Gelzinis. Jul 18, Gregg Gelzinis.
Feb 17, Peter Swire , Jordan Eizenga. FSOC also has five non-voting members:. Terri Vaughan Ph. Five non-voting members serve the council in an advisory capacity. Non-voting members are included in all of the proceedings, meetings, and deliberations of the FSOC, unless the chairperson of the FSOC deems it necessary to exclude them for confidentiality. The ten voting members are selected as follows: [9]. Voting members serve various terms depending on their positions. The chair of the council, the treasury secretary, may be removed at any time.
The five non-voting members serve two-year terms and are selected as follows: [9]. The council may also appoint special advisory, technical, or professional committees within the FSOC.
The council has the authority to collect information from its member agencies, regulatory agencies federal and state , and the Federal Insurance Office. In order to identify potential threats to financial stability, the council monitors the financial services marketplace as well as domestic and international financial regulations. A systemically important financial institution is an institution whose failure the council believes will trigger a financial crisis.
Recommendations can include requiring tighter oversight by an institution's regulatory body or requiring an institution to set aside some of its own capital to cover itself in the event of a failure. Financial regulatory bodies are obligated to implement the recommendations of the FSOC. The FSOC may also, with a two-thirds vote by the council, place non-bank financial companies or subsidiaries of international banks under the direct supervision of the Federal Reserve.
The FSOC also has the ability to settle disputes among other federal agencies. Ballotpedia features , encyclopedic articles written and curated by our professional staff of editors, writers, and researchers. This eBook traces the roots of the financial meltdown to the structural and regulatory changes leading from the Glass-Steagall Act to the Financial Services Modernization Act, and on through to the subprime-triggered crash.
The book explains how money manager capitalism set the stage for the outbreak of the systemic crisis and debt deflation through which we are still living. And it explains that, despite calls for a return to Glass-Steagall, we cannot turn back the clock.
Modifying and extending his idea for creating a bank holding company would preserve some of the features of Glass-Steagall. Monetary Policy and Financial Structure.
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