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Hensarling Letter Pushes FSOC on Transparency

In a letter to Treasury Secretary Jack Lew, Representative Jeb Hensarling, Chair of the House Committee on Financial Services, criticized the FSOC for a “marked lack of transparency” on the four SIFIs designated so far and for failing to produce documents necessary for proper oversight. The chairs of each of the committee’s five subject-matter subcommittees joined Hensarling in the letter.

Hensarling noted supplemental procedures issued by the FSOC earlier this year intended to increase transparency, but argued that “these limited changes do not cure the serious deficiencies in the SIFI designation process.” Specifically, he suggested that the public explanations for the four designations thus far have been “largely superficial and lacking in analytical rigor, making it difficult for the public and the firms designated as SIFIs to understand how the statutory criteria outlined in the Dodd-Frank Act have been applied in individual cases.” Hensarling complained that the FSOC has not issued guidance on the “de-designation” process or how a SIFI can achieve such a status. He posits that such guidance could actually improve financial stability by providing a level of certainty for designated firms.

The letter also criticizes the FSOC for failing to issue recommendations to the Federal Reserve regarding prudential standards for SIFIs and further for its statement that it has no time frame for when standards will be issued. Absent such standards, “it is impossible for the FSOC–or anybody else, for that matter–to reach informed judgment on whether the costs imposed by the Federal Reserve’s ‘heightened prudential supervision’ of nonbank financial institutions will outweigh the intended public benefits.”

To better understand the designation process, Hensarling requested all non-public records in seemingly all areas of the FSOC’s actions. Among the litany of topics are requests covering any discussion of the statutory factors for designation, any discussion of the reasons for not advancing a company through the designation process, and the composition of the working groups and analytical teams assigned to the evaluations of the four current non-bank SIFIs or other companies under consideration. The letter also requests “records reflecting consideration by any FSOC member or staff of the views of the FSB concerning a nonbank financial company being reviewed for possible designation as a SIFI.”