Surely one of the notable disappointments regarding implementation of the Dodd-Frank Act has been the Financial Stability Oversight Council. Even opponents of the legislation had hopes that the FSOC would succeed. Maybe it will, but there is scant evidence of it.
Intended to bring together the entire universe of U.S. financial regulators in the hope that doing so would identify and forestall new risks to the financial system, the FSOC two years in has not identified much and can therefore be credited with little forestalling. What is going on at the FSOC?
One of its first duties was to designate nonbank Systemically Important Financial Institutions (SIFIs), building upon Dodd-Frank's ham-handed declaration that any bank with more than $50 billion in assets was one. If Dodd-Frank exhibited an astonishing overreach by declaring the likes of Zions Bank or Huntington or Comerica — good banks as they are and important to their customers and communities — to be of potential concern to the U.S. financial system, the FSOC has underperformed by not naming to date a single nonbank financial competitor as a SIFI. The FSOC has declared a few "financial utilities" (such as clearing firms) to be SIFIs, but no insurance companies, no mutual fund groups, no nonbank financial conglomerates, none of the major investment houses we read about every day in the papers. The FSOC has promulgated waves of procedures for naming SIFIs, but only now are there signs that maybe a few firms as examples to others will at last be started down the lengthy bureaucratic gauntlet to SIFIdom.
For the full BankThink piece see "The FSOC: Systemic Oversight or Overlook?"