The Financial Stability Oversight Council (FSOC) is set to meet this coming Monday, October 6. The Council’s agenda includes a continuation of its work in three important areas: designating non-bank firms as systemically important financial institutions (SIFIs), asset management, and improving financial data quality and removing data gaps. With news Friday of MetLife’s request for a hearing to contest its proposed designation as a SIFI, the meeting takes on heightened interest.
What we’ll be watching for: Next steps for MetLife’s hearing, how the FSOC responds to recent criticism of the transparency and targeting of its designation process, and how much progress has been made by the Office of Financial Research (OFR) on the underappreciated data front.
At the FSOC’s last meeting on September 4, its members formally voted to designate one firm as a SIFI. While the FSOC is prevented from naming this firm by its internal policy—a policy that is in tension with calls for greater transparency—the firm was reported to be MetLife. MetLife would be the fourth non-bank designated as a SIFI and the third that is primarily engaged in the business of insurance.1 The Dodd-Frank Act gave such companies 30 days to request a hearing to contest their proposed designations.2 The readout of the FSOC’s September 4 meeting implies that MetLife received its notice of proposed designation on the same day, which would mean that the period to request a hearing would end on October 4. On Friday, MetLife officially requested a hearing, a fact that was confirmed in an SEC filing the company made. The hearing will take place before the Council, the same entity that just voted to designate the firm, within 30 days of the date the hearing was requested.3 Following the hearing, the FSOC will have up to 60 days to notify MetLife of its final determination.4 If a final determination for designation is made, the company would have 30 more days to bring request a court to review the final determination. Judicial review of such an action would focus on whether the FSOC’s determination was arbitrary and capricious.5
The FSOC’s agenda also includes a discussion of its work on asset management. It will be interesting to see if the Council continues to move toward a focus on activities and practices in this area. A 2013 OFR report on asset management and financial stability and a subsequent public forum on the issue raised questions about whether the Council would designate one or more asset managers as SIFIs. However, at its July 31 meeting, the Council “directed staff to undertake a more focused analysis of industry-wide products and activities to assess potential risks associated with the asset management industry.”6 The Bipartisan Policy Center (BPC) viewed this directive as a positive step because our prior work has urged focus more on dangerous activities and practices rather than on designating individual institutions. A more detailed overview can be find in two of BPC’s reports: Responding to Systemic Risk: Restoring the Balance and Dodd-Frank’s Missed Opportunity: A Road Map for a More Effective Regulatory Architecture.
Finally, the Council’s agenda includes a progress update on data issues, an area highlighted in the FSOC’s 2014 annual report. The importance of access to high-quality financial data to a well-functioning financial system does not get the attention it deserves. As Responding to Systemic Risk argued, “the ability to effectively analyze regulatory and supervisory matters is only as good as the data that undergirds that analysis. Prior to and during the crisis, insufficient and non-standardized data compounded the lack of macro-prudential supervision and regulation by giving agencies that relied on financial data an incomplete and flawed picture of markets and the interconnectedness of institutions, activities, and products.” The report recommended that the OFR “ensure that sufficient attention is paid to fulfilling its statutory goal of creating a data standard that allows … forward-looking analysis of financial markets,” and said that “a well-designed data standard that provides more relevant data in a timelier manner than is currently available has the potential to transform financial regulation and should therefore be given priority.”
1 The other three were AIG, GE Capital, and Prudential Financial. Eight additional entities have been designated as systemically significant financial market utilities.
2 12 U.S.C. Section 5323 (e) (2).
3 Ibid. The September 4 vote was unanimous with one member voting present. See September 4 meeting readout at http://www.treasury.gov/initiatives/fsoc/council-meetings/Documents/September%204,%202014.pdf.
4 12 U.S.C. Section 5323 (c).
5 12 U.S.C. Section 5323 (h).
6 See: “Minutes of the Financial Stability Oversight Council,” U.S. Department of the Treasury, July 31, 2014, pp. 3-4. Available at: http://www.treasury.gov/initiatives/fsoc/council-meetings/Documents/July%2031,%202014.pdf.