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Regulatory Whiplash: Examining the Impact of FSOC’sEver-changing Designation... (EventID=116726)

Connect with the House Financial Services Committee Get the latest news: https://democrats-financialservices.h... Follow us on Facebook:   / housefinanci.  . Follow us on Twitter:   / fscdems   ___________________________________ On Wednesday, January 10, 2024, at 2:00 p.m. (ET) Subcommittee on Digital Assets, Financial Technology and Inclusion Chair Congressman Hill and Ranking Member Congressman Lynch will hold a hearing entitled, “Regulatory Whiplash: Examining the Impact of FSOC’s Ever-changing Designation Framework on Innovation." ___________________________________ Witnesses for this one-panel hearing will be: • Jeffrey Dinwoodie, Partner, Cravath, Swaine & Moore LLP • Bill Hulse, Senior Vice President, Center for Capital Markets Competitiveness, U.S. Chamber of Commerce • Ji Kim, General Counsel & Head of Global Policy, Digital Assets, Crypto Council for Innovation • Paul Kupiec, Senior Fellow, American Enterprise Institute ___________________________________ Overview and History of FSOC FSOC was established in 2010 as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act as an interagency body comprised of the heads of U.S. financial regulators. The Council is chaired by the Secretary of the Treasury and has 10 voting members, as well as five non-voting members: Voting Members • The Chair of the Board of Governors of the Federal Reserve System; • The Comptroller of the Currency; • The Director of the Consumer Financial Protection Bureau (CFPB); • The Chair of the Securities and Exchange Commission (SEC); • The Chairman of the Federal Deposit Insurance Corporation (FDIC); The Chairman of the Commodity Futures Trading Commission (CFTC); • The Director of the Federal Housing Finance Agency (FHFA); • The Chairman of the National Credit Union Administration (NCUA); and • An independent member with insurance expertise who is appointed by the President and confirmed by the Senate for a six-year term. Non-Voting Members • The Director of the Office of Financial Research; • The Director of the Federal Insurance Office; • A state insurance commissioner designated by the state insurance commissioners; • A state banking supervisor designated by the state banking supervisors; and • A state securities commissioner (or officer performing like functions) designated by the state securities commissioners. FSOC’s purpose is to identify and address potential threats to financial stability. FSOC is required by statute to submit an annual report to Congress, which provides an overview of the Council’s activities, describes significant financial market and regulatory developments, analyzes potential emerging threats, and makes certain recommendations. Since it was created, FSOC has designated four nonbanks as SIFIs. The four nonbanks include American International Group, Inc.; General Electric Capital Corporation; Prudential Financial, Inc.; and MetLife, Inc. MetLife was the only entity to challenge its FSOC designation. In the case, MetLife Inc. v. Financial Stability Oversight Council, the District Court for the District of Columbia held that FSOC’s decision to designate MetLife as a SIFI was arbitrary and capricious because FSOC did not consider the costs of designating MetLife.3 The case was eventually set aside following a mutual agreement under the Trump Administration. SIFI Designation Process 2012 - 2019 The Dodd-Frank Act permits FSOC, subject to a two-thirds vote, to determine if a nonbank financial company poses a systemic risk to the U.S. financial system and should therefore be supervised by the Board of Governors of the Federal Reserve System and subject to prudential standards. “Systemic risk” is not defined under Dodd-Frank. However, the statute requires the Council to consider ten factors when considering whether an entity poses systemic risk to the U.S financial system. In 2012, FSOC published its final rule and interpretive guidance describing how it intended to implement its statutory authority under Dodd-Frank with respect to SIFI designations. At the time, FSOC presented a three-stage analytical process that would apply the ten statutorily required considerations. The Council stated that it did not intend to conduct any cost-benefit analysis when making a SIFI designation determination. Further, the initial final rule applied a one-size fits all quantitative analytical framework to all examined companies, thus failing to consider a company’s specific activities. In March 2019, the Council approved proposed interpretive guidance to revise and update the 2012 Interpretive Guidance. In December 2019, following the rescinded designations for the remaining SIFI’s made during the Obama Administration, FSOC finalized and published updated guidance. This updated guidance required FSOC to follow a... ___________________________________ Hearing page: https://democrats-financialservices.h...