The mission of the Financial Stability Oversight Council (FSOC) is to look broadly for risks that could adversely affect the U.S. financial system and economy, and to work across agencies to address emerging risks. For that reason, I support the two documents on the agenda today. They provide transparency on how the FSOC looks for and evaluates risk, and establish a workable framework to use the full range of the FSOC’s tools. I would like to thank the Secretary for her leadership in moving these two documents forward for action today by the FSOC.
The Analytic Framework for Financial Stability Risk Identification, Assessment, and Response outlines the types of risks the FSOC needs to monitor, flags key transmission channels through which those risks could affect the broader financial system, and lays out the full range of tools that the FSOC has to address systemic risks beyond the normal regulatory and supervisory work of the member agencies. I believe this is the most thorough description of the FSOC’s approach that has been shared publicly. I support the transparency this brings and welcome the opportunity for public comment to ensure that we have considered all the risks and transmission channels that the FSOC should be reviewing.
I also support the proposed revisions to the Council’s Guidance for Nonbank Financial Company Determinations . Past crises have taught us that we need to be prepared to use all the tools the FSOC has to prevent damage to the U.S. financial system. Designating nonbank financial companies for enhanced supervision is one of the Council’s most important tools, and these reforms will help ensure that it can used credibly and effectively.
Importantly, the new Guidance would assign clear responsibility to the Systemic Risk Committee (SRC) of the FSOC for regular monitoring and reporting about nonbank financial firms that may pose a risk to financial stability and merit further review. It would also leverage the work of the FSOC’s other working groups and committees which bring together experts from multiple agencies to undertake specialized risk reviews.
This process will create a credible, systematic review of potential risks in firms across the financial system, and enable the FSOC to utilize effectively all the tools within its authority.
Finally, I would like to thank the Council’s member agency staff for their thoughtful work in developing these documents.