The House Financial Services Committee advanced legislation on Friday that was introduced by Rep. Randy Neugebauer (R-Texas) to suspend the Financial Stability Oversight Council’s (FSOC) authority to make financial stability determinations.
Neugebauer, the chairman of the House Financial Services Subcommittee on Housing and Insurance, said the FSOC’s designation of non-banking firms as financial risks, or systematically important financial institutions (SIFI), could impair international competitiveness of U.S. firms and jeopardize financial markets.
“Rather than using data, history, and economic analysis to justify SIFI designations, FSOC has used far-fetched, highly speculative ‘worst-case scenarios’ to justify an aggressive expansion of regulatory power from Washington,” Neugebauer said. “And recent evidence shows that rather than making its own determinations about the systemic significance of large U.S. non-bank financial institutions, the FSOC has instead rubber-stamped decisions made by the G-20’s Financial Stability Board.”
Created under the Dodd-Frank Wall Street Reform and Consumer Protection Act, the FSOC is tasked with identifying risks to the country’s financial stability, promoting market discipline and responding to emergent system risks.
The FSOC is able to deem any financial firm a risk to the country’s financial stability and to respond with supervision measures that are similar to what banks face. Firms like AIG, GE Capital and Prudential Financial have been labeled risks by the FSOC and are subject to supervision, Forbes reports.
Neugebauer said the FSOC’s recent designation of Prudential Financial was “grounded in implausible, even absurd, scenarios.”
“Now FSOC is turning its attention to asset masnagers with the same flawed logic used for the Prudential designation – despite the fact that asset managers pose no threat to the stability of the financial system,” Neugebauer said.
Neugebauer’s bill would place a six-month moratorium on FSOC’s authority to make SIFI designations.
“This will give Congress time to conduct important oversight over FSOC’s designation process and work in a bipartisan manner to improve its structure,” Neugebauer said. “Given the bipartisan concern about FSOC’s designation process, I urge my colleagues to support this important bill.”