Comment to FSOC: Do Not Erode Nonbank Financial Company Designation Authority
Eric Froman
Office of the General Counsel
U.S. Department of the Treasury
1500 Pennsylvania Avenue, NW
Washington, DC 20220
Re: Docket ID FSOC-2026-0034; Authority to Require Supervision and Regulation of Certain Nonbank Financial Companies
Dear Members of the Financial Stability Oversight Council,
Americans for Financial Reform Education Fund, Public Citizen, and Sierra Club oppose the Financial Stability Oversight Council’s (FSOC) proposed guidance on nonbank financial company (NFC) designations and recission of the Analytic Framework [1]. The proposal will make it more difficult to designate firms that pose risks to U.S. financial stability, threatening FSOC’s stated goals of economic growth and security. In the face of numerous risks to financial stability originating and/or transmitted outside the banking system—in particular the financial risks posed by climate change—eroding FSOC’s authority to designate NFCs for enhanced supervision is irresponsible. Instead of weakening the NFC designation guidance, FSOC should use the existing guidance to evaluate the suitability of large, complex, and interconnected property insurers, nonbank mortgage lenders, and other firms for designation. Please see the attached comment in response to FSOC’s 2023 proposed designation guidance for further information on using these tools to tackle climate-related financial risk.
Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act after the 2008 financial crisis granting the Department of Treasury new authorities and tools to end the era of “too big to fail” financial firms, to monitor and enhance the supervision of very large and interconnected NFCs, and to avoid further public bailouts for Wall Street firms. As of 2026, the government has not accomplished these goals. Concentration is near all time highs in banking and asset management. Private fund assets now eclipse the entire commercial banking industry and nonbank lenders originate two thirds of all mortgages, all with almost no federal oversight. And in 2025, property insurers received an emergency public bailout to cover losses due to the climate-exacerbated wildfires in Los Angeles.
Eroding FSOC’s designation authority increases the likelihood that threats to U.S. financial stability will go unaddressed, emboldens NFCs to increase risk taking by removing the specter of enhanced supervision, and risks putting the public on the hook for firm bailouts. The proposed guidance weakens FSOC’s designation authority in several ways:
- Removes destabilizing activities from the vulnerabilities considered in firm designation. Considering a firm’s engagement in destabilizing activities is an important way FSOC can identify firms responsible for creating risks for other financial institutions and the financial system more broadly. Firms that lend to highly leveraged companies or originate risky derivative products that they then sell to other financial institutions and investors warrant additional scrutiny. Removing destabilizing activities from the vulnerabilities considered in designation limits the ability of FSOC to address risky activity at the point of origination instead of waiting for these activities to create material losses for other firms. (see attached: p. 12-13)
- Prioritizes an activities-based approach. In practice, prioritizing an activities-based approach greatly weakens FSOC’s ability to respond to threats to financial stability. FSOC does not have the authority to regulate NFC activities; it can only issue guidance for others on activities creating risks (which regulators can choose whether or not to implement). FSOC can and should issue such guidance for risks it identifies, but this approach is not a replacement for firm designation. Moreover, when risks to financial stability arise from a specific firm’s activities or material financial distress, this approach is not suitable. (see attached: p. 7-8)
- Requires a cost benefit analysis prior to designation, including an evaluation of a firm’s material financial distress. Requiring FSOC to do a cost-benefit analysis prior to designation is contrary to statute and impractical for timely responses to threats to financial stability. Furthermore, such analyses are inherently uninformative and imprecise (costs to firms are far easier to calculate than the benefits of avoiding a financial crisis). An evaluation of material financial distress is similarly impractical (many firms including Bear Stearns and Silicon Valley Bank appeared to be in good financial condition immediately preceding their failure) and contrary to the purpose of designation, which is to take a precautionary approach to prevent material financial distress in a firm that could threaten financial stability. (see attached: p. 9-10)
Climate change exacerbates existing vulnerabilities in the financial system and increases the need for regulatory scrutiny of NFCs. NFCs can face material distress though growing physical and transition risks. Increasingly frequent, severe, and widespread climate disasters are driving up losses for property and casualty insurers and leading them to aggressively raise rates or withdraw from communities altogether and deny record numbers of claims. As a result, mortgage lenders are increasingly exposed to underinsured mortgages or mortgages insured by low-quality providers. At the household level, rising insurance costs are leading to higher credit card debt, higher credit card default rates, and higher mortgage delinquency rates.
NFCs also create risk for other financial institutions and the broader financial system through activities that worsen the climate crisis. Through financing, underwriting, and investing in fossil fuels and other emissions-intensive industries, NFCs are worsening the climate crisis and increasing financial stability risks. Many large property and casualty insurers, for example, are continuing to underwrite fossil fuel projects and finance fossil fuel companies, even as those activities drive up damages and insurance costs for their customers. (see attached: p. 5-7)
Thank you for the opportunity to comment. Given the deficiencies of the proposal and the growing threats to financial stability from NFCs, we encourage the Council not to finalize the proposed guidance. Please reach out to Alex Martin (alex@ourfinancialsecurity.org), Elyse Schupak (eschupak@citizen.org), or Jessye Waxman (jessye.waxman@sierraclub.org) if you have any questions.
Full comment attached.
Sincerely,
Americans for Financial Reform Education Fund
Public Citizen
Sierra Club
[1] Authority to Require Supervision and Regulation of Certain Nonbank Financial Companies, 91 FR 15551 (Mar. 30, 2026) (to be codified at 12 C.F.R. pt. 1310).