In his opening statement at the House Financial Services Committee’s hearing “The Annual Report of the Financial Stability Oversight Council,” Chairman Jeb Hensarling (R-TX) criticized the Council’s lack of openness and transparency. He stated that other than agencies that focus on classified national security issues, the FSOC may “very well be the nation’s least transparent federal entity.” He expressed concern that while the FSOC is focused on the risk imposed by “shadow banking,” it ignores dangers of the “’shadow regulatory system’ of which the FSOC is front and center.” To illustrate his point, he cited a lack of opportunity for the public to witness meetings as well as a lack of meaningful summaries of those meetings. According to Chairman Hensarling, the lack of transparency is a pressing issue because of the FSOC’s power to make SIFI designations. He mentioned one estimate that found that SIFI designation “could cost investors as much as 25% of the return on their investments over the long term or approximately $108,000 per investor.” Chairman Hensarling called for the FSOC to “cease and desist with these designations so Congress can have time to conduct effective oversight.”
Chairman Hensarling’s statement comes on the heels of two recent bills the Committee has referred to the full House, which are intended to increase the transparency of the FSOC’s activities and curb the Council’s power to make non-bank SIFI designations. HR 4387 would require FSOC meetings to be open to non-FSOC members and increase scrutiny of FSOC determinations. HR 4881 would place a one year moratorium on any non-bank SIFI designations.