A substantial number of the FSOC recommendations reflect the agenda of SEC Chair Gensler (e.g., climate disclosure, Form PF amendments, mandatory clearing of US government securities). All of these rulemakings are, to put it mildly, controversial. The FSOC's endorsement of disputed actions taken by the SEC demonstrates how political concerns affect the FSOC's identification of, and recommendations on risk. Many of the risks identified are those for which the government cannot be blamed…

Scaring people is one way to motivate them. In this address, Chair Gensler left a dramatic impression of the impending threat based on unrelated risks to the financial system from the use of AI. Setting aside the fact that all innovation can be considered threatening, a scare strategy is not a path to good rulemaking. Good rulemaking should address some specific problem or goal with an understandable and realistic process for achieving that goal.

Is there actually some evidence that…

FSOC has not proved successful at anticipating risks to the economy. Its was full of dire warnings about climate change and largely missed the risk of inflation, which turned out to be the not-so-hidden killer of SVB and two other significant banks, as well as necessitating the FDIC essentially having to guarantee the deposits of every bank in the country.

The future of the FSOC as currently configured is worthy of some discussion. The FSOC is a partisan group, composed only of…

If the SEC's requirement for central clearing of repos is to be implemented without significant costs to market participants and the taxpayer, it will be necessary to provide some benefits to market participants that are subject to central clearing of repos. The ability to cross-margin with futures would be a good start.