GAO Report Says FSOC Lacks Transparency, Accountability

Press Release

Today, the Government Accountability Office (GAO) released the results of a comprehensive study requested by Senate Banking Committee Ranking Member Mike Crapo (R-Idaho) analyzing the Financial Stability Oversight Council's (FSOC) process to designate systemically important non-bank financial companies (non-bank SIFIs) for additional regulation by the Federal Reserve. The FSOC is a council created by the Dodd-Frank Act to, among other things, designate a financial firm as systemically important if the institution's financial distress could cause instability of the U.S. financial system.

The GAO report highlights several problems with how FSOC oversees and manages the non-bank SIFI designation process. Broadly, GAO concluded that FSOC's process lacks transparency and accountability, insufficiently tracks data and does not have a consistent methodology for determinations.

"Before FSOC makes further non-bank SIFI designations, its activities must be transparent and objective, with clearly outlined criteria when such designations are appropriate," Crapo said. "The non-bank SIFI designation process has proved immeasurable and unclear, with serious regulatory consequences for firms that receive the designation that will inevitably translate into higher costs for consumers and the overall economy. Threatening to subject firms to a new regulatory regime without clear and objective standards is not only contrary to the long established principles of our regulatory framework, but doing so will lead to legal uncertainty that will undermine the very objective of FSOC."

To date, FSOC has designated three non-bank entities as systemically important, and the publicly released documents surrounding the designations have provided little useful insight into the specific criteria FSOC used. GAO ultimately determined that making FSOC's designation process more systematic and transparent could bolster public and market confidence in the process and help FSOC achieve its intended goals.

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