Systemic Risk

A task force of the Financial Regulatory Reform Initiative

John C. Dugan l Peter R. Fisher l Cantwell F. Muckenfuss III

Objective

The initiative will examine the systemic risk provisions in the Dodd-Frank Act against a stated public policy objective. The preliminary objective is that such regulation should foster financial stability by identifying threats across financial markets and financial firms and taking appropriate actions to address those threats, while aligning incentives for prudent private sector risk management to protect taxpayers. The initiative will consider the value of increased stability in the context of its effects on economic growth.

Strategic Approach

Within this issue area, the initiative will examine the macro-prudential supervisory policies established by the Dodd-Frank Act, including the role of the Financial Stability Oversight Council, the merits of identifying systemically important financial firms, the scope of heightened supervisory powers given to the Federal Reserve Board, and the potential for certain practices and activities to migrate from highly regulated to less regulated firms and markets.

Preliminary Issues

  • The Financial Stability Oversight Council (FSOC)
  • SIFI designation
  • Office of Financial Research
  • Enhanced prudential standards (capital, liquidity, risk, credit exposures, stress tests)

Research Questions

  • Does branding an institution a SIFI have unintended consequences? Does not branding an institution as a SIFI have unintended consequences?
  • Is the threshold for SIFI designation set appropriately?
  • Does the designation process work for non-bank financial institutions?
  • Is there sufficient coordination among the research division of the Federal Reserve Board, the FDIC, FSOC, and OFR?

Deliverables

The initiative will release a white paper that recommends modifying the Dodd-Frank Act to the extent that the systemic risk provisions of the Act deviate from, or conflict with, the stated objective for systemic risk regulation.

Report

Responding to Systemic Risk: Restoring the Balance
September 4, 2014