WASHINGTON – Top US regulators proposed new rules to speed the assessment of financial stability risks and make it easier to designate non-bank institutions as systemically important, subjecting them to Federal Reserve supervision.
The multi-regulator Financial Stability Oversight Council released the proposals for public comment just over a month after two regional bank failures sparked the biggest financial system contagion threat since the 2008 financial crisis.
US Treasury Secretary Janet Yellen has raised concerns about non-bank financial institutions, including hedge funds, because of their lack of supervision and the potential for systemic spillovers from firms in distress.
Revisions to guidance on branding such firms as systemically important reverse some aspects of Trump-era changes in 2019 that made such designations more difficult.
Yellen said the new guidance removes some “inappropriate hurdles” to designating non-bank firms, causing the process to take up to six years.
“That is an unrealistic timeline that could prevent the Council from acting to address an emerging risk to financial stability before it’s too late,” she said in remarks to the FSOC meeting she chaired on Friday.
The new guidance drops 2019 requirements that FSOC assess the likelihood of a firm’s financial distress, apply an “activities-based approach” and conduct a cost benefit analysis prior to designation — which National Credit Union Administration Chair Todd described as a “Rube Goldberg-like process.”
These will be replaced with a quantitative and qualitative analysis process under which the council determines whether “material financial distress at the company or the company’s activities could pose a threat to US financial stability,” a Treasury official told reporters, adding that it was not a complete return to 2012 guidance.
The revised designation process also allows for ample engagement between regulators and a company under review, officials said. – Reuters
