In a new report, the GAO found that both the Financial Stability Oversight Council (“FSOC”) and the Office of Financial Research (“OFR”) serve purposes that may be useful, but that “collaboration among FSOC members can be challenging”: the organizations “should develop a systematic approach” to dealing with their responsibilities, should “improve transparency” and “develop strategic planning.” (See page 2 of the report.) Further, FSOC and OFR “have not defined their roles and responsibilities.” (See page 17 of the report.)
This report was conducted pursuant to Dodd-Frank Sections I (“Financial Stability”) and VII (“Wall Street Transparency and Accountability”) in order to determine the agencies’ progress on their implementation of the ten recommendations previously suggested by GAO in September 2012. The GAO concluded in this report that, among others, the following prior recommendations have yet to be met: The need to (i) develop a more systematic approach to identify potential threats to financial stability, (ii) implement more forward-thinking processes for identifying emerging threats, and (iii) improve transparency by keeping more detailed records.
The report further concluded that the OFR should implement a strategic framework that links to strategic goals and performance measurement systems, and that FSOC should implement monitoring systems, policies governing collaboration, and a framework to assess the impact of its designation decisions.
Lofchie Comment 1: The report is very gentle in its tone, but the underlying substance is critical. One primary reason that FSOC is having problems is that the structure of the organization is fundamentally flawed. Its primary mission is to manage systemic risk in the economy, yet its members are a group of diverse governmental agencies each of which has missions that are different from, and not necessarily closely related to, that of FSOC. It’s as if you wanted to field a dream team in basketball, so you picked the best players you could find, but in a variety of sports, including horse racing, sumo wrestling and synchronized swimming. (See page 3 of the report.)
According to the report, the combining of various government agencies into FSOC has been so problematic that FSOC has not even made much progress on its website. In this regard, the report compares FSOC unfavorably with the CFPB, which apparently has a very nice website. (See page 12 of the report.)
Lofchie Comment 2: One of the primary missions of the FSOC is to identify non-banks that are causes of systemic risk to the economy and to subject those non-banks to bank-like regulation. According to the report (on page 16), FSOC has not yet designated any such companies. The report then goes on to lay out a number of problems with the designation process. Most of these problems are really not problems with FSOC, but with the provisions of Dodd-Frank that require such designation. I think one may fairly read the GAO report to suggest very strongly that these provisions of Dodd-Frank were not well considered. Any organization eventually designated as “systemically important” by FSOC should find in the GAO’s report some useful material to assist in challenging the fairness of any designation of systemic importance that may be made ultimately by FSOC.
Click here to view the study in full (links externally to GAO website).
Related News: “FSOC and OFR Should Strengthen the Accountability and Transparency of Their Decisions (GAO Report)” (September 14, 2013).