WASHINGTON — Treasury Secretary Jack Lew sought to deflect persistent criticism on Capitol Hill aimed at the Financial Stability Oversight Council Tuesday, telling House lawmakers that the panel's mission is critical in preventing the next crisis.

"We have to be allowed to ask questions," said Lew, who as FSOC's chair delivered the council's annual report to the House Financial Services Committee.

Lew, who will appear before the Senate Banking Committee Wednesday, said the risk of impeding the FSOC's fact-finding about potential risks facing large financial institutions could undermine the overall health of the system.

"As everyone here knows, during the run-up to the financial crisis regulators should have asked more questions about institutions and activities, not fewer," he said. "To be clear, asking questions does not equal regulatory action. Sometimes questions result in a conclusion that the council does not need to act, that it needs to examine the issue further, or that it needs to gather more information."

Yet the council — established by Congress to search for weaknesses and potential vulnerabilities in the entire financial system — has been under attack by some in Congress for what they see as the FSOC's lack of transparency. Critics have described the council's labeling of nonbank firms as "systemically important" — which subjects them to greater oversight — as too secretive, saying the public and members of Congress have largely been kept out of the process. Criticism has intensified of late as many have urged the council against giving certain asset management firms the "systemic" label.

"FSOC may very well be the nation's least transparent federal entity," said Rep. Jeb Hensarling, R-Texas, chairman of the Financial Services Committee. "The public cannot view their proceedings because two-thirds of them are conducted in private executive sessions. And when the minutes are produced, on average, they weigh in at a mere five pages long, with half of the pages devoted to memorializing attendees' names and resolutions considered."

The council, in the face of such criticism, has taken steps meant to increase transparency, but has also repeatedly argued that certain information about its activities must be kept confidential given that market-sensitive information is often discussed during its meetings.

Lew acknowledged that the council is still "a young organization" that will evolve and become more open but that a completely open process would be disservice.

"What we need to balance is what is a process that requires a certain amount of confidentiality with transparency," Lew said.

But that answer was not enough to satisfy certain Republican lawmakers, including Rep. Scott Garrett of New Jersey, who introduced recent legislation to increase transparency at the council after he was barred from attending a closed meeting.

"As a congressman, I can be briefed on the most sensitive intelligence and national security information, but I'm not allowed to even sit quietly and listen in on an FSOC meeting," Garrett said.

Garrett, who chairs the Financial Services panel's subcommittee on capital markets, took that argument even further by displaying an empty cardboard box to show the lack of response by Lew and other council members to his requests to obtain information on the FSOC's relationship with the international Financial Stability Board.

"We got absolutely nothing from you when you promised us that you would supply us with that information," Garrett said. "This stonewalling by you and this department must stop. We have to get real answers from you and from Treasury."

Lew also found himself defending the council's designation process, which has come under fire, especially as the interagency group has taken early steps to examine the asset management industry.

Lew sought to make the case that the council's designation process for asset managers as well as other types of firms was being conducted with an "open mind." The FSOC's line of questioning related to sectors it is looking at is being done "without a predetermined outcome," he said.

"We're not looking to designate for the sake of designating," said Lew. "We're only looking to identify where are the areas of systemic risk that if we look back at the next financial crisis, we would say, 'Why didn't you catch that?'"

Asset managers like BlackRock, Fidelity and PIMCO have been vehemently opposed to being designated as systemically important by the council, and have successfully persuaded lawmakers to be sympathetic to their cause.

Last week, the House committee approved two bills to delay the FSOC from making designations of systemically important nonbanks for 12 months and allow for greater participation by banking agency officials and lawmakers at FSOC meetings.

At the hearing, lawmakers also criticized the council for previously ignoring the dissent of S. Roy Woodall, a special independent member of the council with insurance expertise, when the FSOC chose to designate Prudential as systemically important.

"When you ignore the expertise of people that have been put on FSOC to give you some guidance in that area, I think that's one of the reasons that you hear so many of us question the methodology that's being used in this process," said Rep. Randy Neugebauer, R-Texas.

But Lew defended the council's designation of the Newark, N.J.-based insurance giant.

"I thought the designation was appropriate and the risk analysis warranted it," said Lew, noting that the insurance company did not appeal the determination.

Neugebauer also chided the council for trying to "forecast cataclysmic events" and using that to determine potential vulnerabilities that could arise under a stressful environment.

Lew argued that "the question is not whether something has happened, but whether there is systemic risk in the future."

"I think the scenarios that you look at tend to be scenarios that have not been experienced because your goal is to avoid having a financial crisis that you could avoid," he said.

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