WASHINGTON — Banks praised the Financial Stability Oversight Council's
In the days after the council issued the proposals, banking trade groups offered their support of both FSOC and the push to rein in nonbank firms and activities that they say skirt the kinds of regulation the public has come to expect from banks.
"Large nonbank financial institutions that pose outsized risks to the financial system similar to those posed by large banks should be required to meet similar capital and liquidity standards," Rebeca Romero Rainey, president and CEO of the Independent Community Bankers of America, said in a
The Bank Policy Institute, which represents large banks, echoed that sentiment in its own
But experts say the proposals are only the beginning of what will likely be a long slog of political mudslinging and regulatory procedure.
"Nonbanks, and Republicans in Congress, will push back hard on the FSOC proposal," said Ian Katz, managing director at Capital Alpha Partners. "Don't expect FSOC designations anytime soon. There's still a very long process the FSOC would have to go through to tag a nonbank as a SIFI. Even if it started now, the process would probably take at least a year. And any designated company is likely to challenge the decision in court."
As in the Trump administration,
"[Banks] think they get tougher oversight and supervision than nonbanks," Katz said. "So anything that moves toward leveling the playing field is a good thing in their eyes."
Former FDIC lawyer Todd Phillips thinks regulators are targeting institutions that while not banks, constitute large market shares and could pose systemic risks, including crypto companies.
"I expect that insurance companies and asset managers are going to be the principal targets for designation. If some of the large U.S.-based crypto firms do not come into compliance with SEC rules, I could see them being targets for designation as well" he said.
FSOC was created as part of Dodd-Frank to allow financial regulators a venue and the authority to apply prudential rules preventatively to parts of the financial system that pose systemic risk. The council designated four firms — AIG, Prudential, GE Capital and MetLife — as systemically risky, but ultimately all four firms shed the label and the Trump administration issued a guidance that rendered its designation authority moribund.
Katz thinks this is only the beginning of a new front for partisan fights over regulatory authority, and that any actual ramifications for new company designations are in the more distant future.
"This is a step toward going back to how it was before, under the Obama administration, when the FSOC designated four companies — AIG, GE Capital, Prudential and MetLife — in 2013 and 2014. None of them are currently designated," Katz wrote in an email.
As for who might be the subject of future designations, Isaac Boltansky, director of policy research at the investment bank BTIG, thinks a number of industries and activities could be examined by the council. But rather than looking to traditional targets like insurance companies, FSOC will likely turn to more politically profitable industries, including private equity, peer-to-peer payment platforms, stablecoins and digital asset companies.
"This action is meaningful, especially the removal of the preexisting cost-benefit analysis requirement," he wrote in an email. "The FSOC is a powerful tool, but it has been left in the garage and the Biden administration appears to just now be looking to dust it off and find somewhere to use it."
