The Financial Stability Oversight Council today proposed new guidance to walk back recent changes for determining whether nonbanks should be subject to Federal Reserve supervision.
Under the Dodd-Frank Act, the FSOC can designate nonbank financial companies as subject to Fed supervision if they potentially pose a threat to U.S. financial stability. The council last revised its guidance for making those determinations in 2023.
The new proposal would reinstitute several elements first introduced by its 2019 interpretive guidance and add new elements “that reflect the council’s current understanding of financial stability.” They include:
- A requirement that FSOC incorporate economic growth and economic security into its analysis of risks to financial stability.
- Language stating that FSOC will pursue entity-specific designations only if a potential risk or threat cannot be, or is not, adequately addressed through an activities-based approach.
- A commitment to perform a cost-benefit analysis before a designation decision.
- A new “off-ramp” option under which the FSOC would identify steps a nonbank financial company or financial regulators could take to address a potential threat to U.S. financial stability and allow time for the risks to be addressed.
“Today’s proposed guidance would return the council to prioritizing an activities-based approach where we focus first on risks that arise from specific activities and practices across markets, rather than single out individual firms,” Treasury Secretary Scott Bessent said.
The proposed guidance will be available for a 45-day public comment period following publication in the Federal Register.
