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Improve FSOC Accountability and Transparency Now

By Aaron Klein, Justin Schardin,

Tuesday, May 6, 2014

On May 7, the Financial Stability Oversight Council (FSOC) will meet in open session to consider ways to increase its transparency. We applaud the FSOC for focusing on this important issue. Boosting the Council’s transparency would be an important step in increasing its effectiveness. The Dodd-Frank Act assigned significant responsibility to the FSOC to identify and respond to risks and emerging threats to the financial stability of the United States, while also promoting market discipline. To carry out these responsibilities, the FSOC was provided important tools, including the authority to make policy recommendations to regulators, the ability to more quickly share data and information between regulators, and the power to designate any non-bank financial institution as systemically important. Given these critical mandates, it is important that both stakeholders and the broader public understand the actions and deliberations the FSOC is undertaking.

The Financial Regulatory Reform Initiative’s recent report entitled Dodd-Frank’s Missed Opportunity: A Road Map for a More Effective Regulatory Architecture made several key recommendations for increased FSOC transparency. Specifically, the report recommends that the FSOC should:

  • Release additional details about the closed-door conversations that occur during their regular meetings, much like the Federal Reserve Board (Fed) does when it releases detailed minutes from the its Federal Open Markets Committee (FOMC) meetings;
  • Commit to use more open forums to discuss FSOC business in greater detail;
  • Create a process for better communicating its discussions to the public;
  • Utilize advisory committees as authorized under Dodd-Frank and as envisioned by the FSOC’s 2010 Dodd-Frank implementation plan;
  • Perform economic impact assessments on non-bank SIFI designations;
  • Improve its strategic-planning and performance-measurements systems; and
  • Assign accountability for monitoring recommendations made in the Council’s annual reports.

While the FSOC clearly cannot release all the sensitive financial information that it discusses, it can and should release additional details about its closed-door conversations. This would follow the precedent set by the Fed’s FOMC, which releases detailed minutes three weeks after each meeting. For many years, there was a debate about whether the Fed could increase its transparency while also discussing market sensitive information. The Fed was able to do just that, enhancing its transparency while also preserving its integrity and increasing the flow of information to the market, investors, and the general public. Given the Fed’s success in boosting transparency, we hope and expect that the FSOC can follow the same model.

If the FSOC can increase its transparency, it will serve to strengthen the body in the long-run and help it accomplish its critical mission.

KEYWORDS: DODD-FRANK ACT, FEDERAL OPEN MARKET COMMITTEE, FEDERAL RESERVE BOARD, FINANCIAL STABILITY OVERSIGHT COUNCIL (FSOC), SIFIS