HFC Chair Criticizes FSOC Plan to Expand FRB Jurisdiction Over Nonbank Financial Institutions
Commentary by Steven Lofchie
House Financial Services Committee Chair Patrick McHenry (R-NC) criticized the Financial Stability Oversight Council’s ("FSOC") plans to evaluate nonbank financial institutions based on their size, rather than activities.
In a Letter to FSOC Chair Janet L. Yellen, Chair McHenry argued that the plan is a "significant departure" from FSOC's 2019 principles to evaluate whether activities of a financial institution present systemic risk. Mr. McHenry stated that assessments and cost benefit analyses focused on an entity’s activities and stress have "long provided important protections to nonbank financial institutions" and "are grounded in the constitutional principles of due process – both substantive and procedural." He emphasized that prudential regulation by the Federal Reserve Board ("FRB") is only intended to mitigate "specific risks that bank activity poses."
Mr. McHenry said that the FSOC proposal to increase the FRB's oversight and control, would expand its jurisdiction to institutions other than banks. He urged the FSOC "to revisit its published assessments, analysis and interpretive guidance impacting nonbank financial institutions."
Commentary
The regulations that could result from the FSOC decision likely would be based on the regulations to which bank holding companies are subject and would be entirely unsuited to the regulation of other types of entities. The systemic risk statutory provisions were an example of the Dodd-Frank provisions that were adopted in the post-financial crisis burst of legislative exuberance. They are utterly impractical in actuality as applied to non-banks. See also, FSOC Wants Expanded Ability to Regulate Nonbanks Creating Risk; FSOC Rescinds SIFI Determination from Prudential Financial; No Non-Bank SIFIs Remain; Republican Staff Rips into "SIFI" Designation Process.