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FSOC Reestablishes Vital Process for Protecting Financial System from Systemic Threats; Now FSOC Must Use It

WASHINGTON, D.C. – The Financial Stability Oversight Council (FSOC) today released the finalized Analytic Framework and Guidance for Nonbank Financial Company Determinations, laying out a durable process for the designation of certain nonbank companies as systemically important financial institutions (SIFIs) that require supervision by the Federal Reserve. Bartlett Naylor, financial policy advocate for Public Citizen, issued the following statement:

“A new designation process will only be as valuable as FSOC’s willingness to use it. To protect the stability of the U.S. financial system, it’s essential that FSOC begin evaluating possible systemic threats related to major insurers and other nonbanks and initiate designation processes accordingly.

“After the 2008 financial crisis, in which under-regulated financial companies like AIG played a major role in tanking our economy, Congress created FSOC to identify systemically important financial institutions (SIFIs) that require greater supervision. But the Trump administration neutered FSOC’s ability to make SIFI designations. The cost of that AIG-intensified crash meant millions of Americans lost their jobs, their savings and their homes. The action FSOC took today marks a crucial first step towards filling this glaring regulatory gap.

“Like the subprime mortgage crisis that led Congress to pass the Dodd-Frank Act, today our financial system faces another overwhelming threat: the climate crisis. Climate change is already causing turmoil, withdrawals, and failures in the insurance industry from coast-to-coast, and these dangerous dynamics could lead to bank failures, financial instability, or even worse economic calamities. In addition, reckless fossil finance and underwriting by nonbanks are contributing to this crisis.”

Public Citizen has multiple experts who are available to comment on this news, including Aaron Regunberg, senior policy counsel for Public Citizen’s Climate Program. Contact drosen@citizen.org to speak with an expert.