WASHINGTON — The Financial Stability Oversight Council will publish more details this fall on a shift from targeting specific nonbanks for enhanced oversight to flagging activities across multiple firms, a senior Treasury Department official said Wednesday.
Craig Phillips, counselor to Treasury Secretary Steven Mnuchin, said that all FSOC members are “actively engaged” in identifying activities that pose stress to the financial system. Mnuchin chairs the council, which was created under the Dodd-Frank Act as an early-warning system for risks across the financial markets.
Dodd-Frank authorized the FSOC to designate specific nonbanks as "systemically important," thereby subjecting them to banklike supervision. But the Trump administration, as indicated by a November 2017 report, has indicated support for "activities-based" designations.
"All the members" of the council "are now working towards publishing something on that in the fall, which is, I would sort of characterize it, an activities-based approach for designation ... to really identify the activities that are causing potential stress to the system and work with the primary regulator to address the appropriate means of best managing that risk as opposed to focusing exclusively on the designation of the individual entity," Phillips said Wednesday at the Exchequer Club in Washington.
Under the Obama administration, the FSOC issued "systemically important" designations for American International Group, MetLife, GE Capital and Prudential.
AIG and GE Capital have since been de-designated by the council. In March 2016, a court struck down MetLife’s designation. The FSOC, which then was chaired by former Treasury Secretary Jack Lew under the Obama administration, appealed the ruling. But Mnuchin dropped the case in January 2018. Prudential is currently the only nonbank designated by the FSOC.
The announcement is expected to come about a year after Treasury issued a report calling on the council to prioritize activities-based designations.
Treasury's report last year, which was requested by President Trump in an April 2017 executive order, called on the FSOC to revise its approach to designating risks, such as formally requiring a cost-benefit analysis of any designation and amending assessments for the transmission of risk.
