Congress Eyes FSOC Reforms: Funding, SIFIs in Crosshairs

The House Financial Services Committee is preparing to consider a series of bills in late October that is dedicated to reforming the Financial Stability Oversight Council (FSOC). The inspiration for many of the bills is the lack of transparency in the Council’s determination of which firms are deemed systemically important. At least one of these bills would repeal the $50 billion threshold for “SIFI” status, or so-called systemically important financial institutions, in favor of a determination by FSOC based on a broader set of factors.

One of the bills under review, HR 3340, would place the FSOC’s operations under the regular appropriations process. Here the gripe is perceived extravagant spending on the new headquarters of the Office of Financial Research (OFR), which is under the oversight of Treasury and the FSOC.

Currently, the Council uses a separate fund known as the “Financial Research Fund” within the Treasury to replace funding from the Board of Governors of the Federal Reserve System. Dodd-Frank foresaw that the fund would become self-funded through assessments on bank holding companies with consolidated total assets of $50 billion or more. This and other bills would require greater transparency on operations, including quarterly reporting, and public notice and comment requirements for the OFR.

All told, there are six House bills dealing with FSOC (HR 113, HR 1263, HR 1309, HR 1550, and HR 3557) and two in the Senate (S 107 and S 1206). For the most part, the only obviously objectionable provision is that the bill dealing with the threshold determinations — HR 1309 introduced by Rep. Blaine Leutkemeyer (R–MO) — doesn’t consider such factors as on- and off-balance sheet concentrations or leverage of the bank holding companies for a determination of systemic importance. Some will find putting FSOC under Congressional appropriations objectionable, though the potential for mismanagement and overreach are much greater without accountable funding. Beyond that, it is difficult to argue against mandates for greater transparency for FSOC or OFR.

CFA Institute will monitor how these bills proceed, and will provide updates.

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Image credit: iStockphoto.com/sborisov