Representative Carolyn Maloney (D-NY) wrote a letter to Secretary of the Treasury Jacob Lew in which she voiced her concern that the FSOC process for identifying and designating nonbank systemically important financial companies has “created needless uncertainty,” and recommended that FSOC communicate sooner with companies under consideration.
Representative Maloney made suggestions to improve the FSOC designation process that included the following:
- FSOC should provide notice to companies that have advanced to Stage 2 of the designation process, either affirmatively or upon request;
- FSOC should begin engagement with a company that is under consideration once the company has advanced to Stage 2 rather than waiting until Stage 3;
- once FSOC has provided a company with notice that they have advanced to Stage 3, FSOC should identify the particular issues that it believes merit further review in order to determine whether the company is systemically important; and
- once FSOC votes on a proposed designation for a particular company, FSOC should adopt a policy of automatically granting an oral hearing to the company upon request.
According to Representative Maloney, these “modest changes would improve the designation process without undermining the Council’s ability to identify, monitor, and mitigate systemic risk.”
In a statement by the U.S. Treasury Department, it affirmed that it is committed to conducting FSOC business in an open and transparent manner and is reviewing Representative Maloney’s proposals.
Lofchie Comment: Representative Maloney’s letter is interesting in that it consists of mild criticism by a Democrat of a regulatory organization that has received severe criticism from Republicans. Thus, it may be viewed as an attempt to find middle ground or to blunt a call for more significant changes to FSOC’s operations. The implementation of Representative Maloney’s recommendations would represent some improvement in the manner in which FSOC conducts its process. Recognizing that a fuller review of FSOC would be impractical in our divided Congress, adoption of her suggestions would be preferable from a policy perspective, although her suggesetions would leave open fundamental questions about the FSOC, including its organization, mandate, authority, processes and even continued existence.