House Financial Services Committee Considers FSOC Annual Report on Financial Stability

Treasury Secretary Janet L. Yellen testified before the House Financial Services Committee on the Financial Stability Oversight Council's ("FSOC") 2021 Annual Report to Congress.

In her testimony, Ms. Yellen highlighted deficiencies in nonbank financial institutions' risk assessment, noting that some nonbank financial institutions use similar trading instruments to those of traditional banks and thus may be exposed to similar risks. In order to remedy this, she said that FSOC reestablished its Hedge Fund Working Group with the aim of (i) developing a risk-monitoring system and (ii) offering options to mitigate risks the group identifies. (See related coverage of Ms. Yellen's testimony before the Senate Banking Committee.)

Committee Chair Maxine Waters (D-CA) urged Ms. Yellen to restore FSOC's ability to guard against systemic financial stability threats, asserting that FSOC lacked the resources to effectively safeguard against significant risks.

The Committee also considered new legislation on key topics, including:

• H.R. 3571, the "Climate Change Financial Risk Act of 2021," which would require the Federal Reserve Board to coordinate with other relevant Federal agencies in conducting financial risk analyses relating to climate change;

• H.R. 5419, the "Bank Merger Review Modernization Act of 2021," which would amend and modernize certain banking laws that establish requirements for bank mergers;

• H.R. 7022, the "Strengthening Cybersecurity for the Financial Sector Act of 2022," which would modify the requirements for regulation and examination of credit union organizations and service providers, among other purposes;

• H.R. ____, the "Systemic Risk Mitigation Act of 2022," which would expand the authority of FSOC to provide oversight as to nonbank financial institutions; and

• H.R. ____, the "Treasury Market Transparency Act of 2022," which would require real-time public reporting of secondary transactions in Treasury securities.