FOR IMMEDIATE RELEASE
Jan 25, 2022
Secretary Yellen Needs to Fully Rebuild the Financial Stability Oversight Council
Treasury Secretary Janet Yellen should prioritize repealing the 2019 Trump-era guidance that prevents federal regulators from properly policing institutions whose collapse would imperil the financial system.
In the letter, 30 public interest groups and leading academics called for the Financial Stability Oversight Council (FSOC), chaired by Secretary Yellen, to refocus on supervising systemically important financial institutions. It should not only repeal the 2019 rules, but consider its racial equity mandate when evaluating financial institutions as systemically important. The Treasury Department should also rebuild the Office of Financial Research (OFR), the government’s data collector on potentially dangerous Wall Street activity.
Maintaining FSOC’s ability to monitor systemic risk through the proper regulation of non-bank financial institutions is critical, but its ability to do so is hampered by a feeble OFR, which needs to develop a long-term data collection and analysis strategy. FSOC must also consider the roles of institutions in marginalized communities when evaluating their risk to the financial system, according to the letter.
“The barebones regulation of companies like AIG and Bear Sterns greatly contributed to the 2008 crisis. FSOC was created to give regulators insight into these types of financial institutions, and the ability to bring them under regulatory oversight,” said Renita Marcellin, senior policy analyst at Americans for Financial Reform. “Secretary Yellen, knowing the dangers of the 2019 rules, should act not only to repeal these rules, but to rebuild FSOC and the OFR so they can be, as intended, powerful tools in safeguarding our financial system and protecting marginalized communities. We look forward to working with policymakers to ensure this happens.”
Signers of the letter include financial reformers, racial justice groups, labor unions, consumer advocates, and leading academics. In a similar vein, Senators Elizabeth Warren and Jack Reed recently called on OFR to better use its critical data collection tools to safeguard the financial system from unseen risks.
“The Trump administration‘s decision to halt nonbank SIFI designations deviously stripped FSOC of all legal bite under the Trump era guidance FSOC can only recommend activities-based regulation; it cannot require it,” said Professor Patricia A. McCoy, Boston College Law School. “In contrast, the Dodd-Frank Act allows FSOC to mandate non-bank SIFI designations. Repealing the Trump era nonbank SIFI guidance would restore meaningful systemic risk regulation for all Americans.”
“Consumers are still reeling from the economic fallout from the coronavirus pandemic, record inflation, and stagnant wage growth, and our financial regulators need to exhaust their authorities to prevent another financial crisis that would disparately affect low-income consumers and consumers of color,” said Rachel Gittleman, Financial Services Outreach Manager with Consumer Federation of America
“The ability to conduct research and designate risky financial institutions as systemically important are essential to preventing future financial crises and ensuring economic justice. Yet both were undermined by the Trump administration,” said Todd Phillips, Director of Financial Regulation and Corporate Governance at the Center for American Progress. “It is imperative that Treasury Secretary Yellen and the Financial Stability Oversight Council restore the Biden Administration’s ability to protect American workers and the economy in the future.”
“An entire year into Biden’s presidency, it is absolutely imperative that Secretary Yellen begin using every bit of her existing power as FSOC Chair to advance the president’s agenda. Yellen has the multi-faceted opportunity here to maintain a stable financial system, manage system-wide risks including climate change, and advance racial equity,” said Dorothy Slater, Senior Researcher at Revolving Door Project. “The only obvious choice is for her to take these existing legal authorities and stand up against the Wall Street powers that harm American society.”