WASHINGTON, D.C., May 21, 2019
The Systemic Risk Council urges the U.S. Treasury and other members of the Financial Stability Oversight Council to abandon their 6 March proposal to marginalize their power to designate individual non-bank financial firms as systemically significant.
The proposed guidance, while framed in terms of setting preconditions for when the FSOC would exercise its designation power, would in practice almost certainly deprive the FSOC of the capacity to designate a non-bank firm as systemically significant in time to head off the risks posed by that firm to financial stability.
Commenting on the Treasury’s proposal, SRC Chair Paul Tucker said: “If FSOC really intends activities to be center stage, it should get on with putting in place a general policy to protect the economy from threats to stability from shadow banking. But nor should FSOC flinch from designating any individual intermediaries whose disorderly failure would be systemic. It is too early to put aside one of the most obvious lessons of 2008/09.”
Read the full letter here.
The SRC already expressed its concern with the FSOC’s proposed approach in a comment letter submitted to the Treasury last year.
Read earlier letter here.