FSOC

The Financial Stability Oversight Council's annual report underscores mounting challenges in commercial real estate, escalating cyber threats, and regulatory gaps in third-party services and stablecoins, urging stronger oversight and legislative action.

The incoming Trump administration is expected to prioritize an activities-based oversight approach to nonbank entities, just as the Biden administration has. It may also leave its designation power intact, but unused.

As nonbank entities expand their market share in many traditional banking services and are increasingly intertwined in the banking system, regulators' approach to leveling the playing field has been incremental and situational.

Acting Comptroller Michael Hsu Wednesday suggested the Financial Stability Oversight Council adopt a "tripwire approach" for systemic risk assessment, using systemic risk metrics to advance designations.

Sen. Jack Reed, D-R.I., also brought up concerns with synthetic risk transfers and so-called shadow banks, which he said are shifting risk from outside the banking system into private credit markets.

House Financial Services Committee Chair Rep. Patrick McHenry, R-N.C., pressed the Financial Stability Oversight Council on the resurrection of its ability to designate nonbanks as systemically important.

The Financial Stability Oversight Council is clearing the administrative road to designate nonbank firms and activities as systemically risky, but if it wants those designations to stick it needs the public on its side.

The banking industry and consumer advocates praised the Financial Stability Oversight Council's move to reinvigorate its authority to regulate nonbanks. But that effort is going to take time and is guaranteed to face political headwinds.

The Financial Stability Oversight Council proposed two measures that would enable the body to more easily designate nonbanks as systemically important, a move expected to revive Dodd-Frank era debates between Republicans and Democrats.

The Financial Stability Oversight Council issued a pair of proposals that would enhance transparency into how the council designated nonbank firms and activities as systemically risky and simplify its process for designations.