The federal council set up to safeguard the U.S. financial system against another economic crisis has strayed from its mission, the nation's biggest business lobby says.
The U.S. Chamber of Commerce called Monday for an overhaul of the 2-year-old Financial Stability Oversight Council (FSOC), saying the panel has failed to properly juggle its responsibilities and that there is too much power placed in the hands of a few regulators.
A report detailing the center’s misgivings also lays out 14 recommendations targeting both the council’s operations and its voting structure.
Officials representing the council did not immediately comment on the concerns or the recommendations.
Created in 2011 by the Dodd-Frank Wall Street reform law, the 10-member FSOC is chaired by Treasury Secretary Jack LewJack LewOne year later, the Iran nuclear deal is a success by any measure Chinese President Xi says a trade war hurts the US and China Overnight Finance: Price puts stock trading law in spotlight | Lingering questions on Trump biz plan | Sanders, Education pick tangle over college costs MORE and made up of a group of top financial regulators across several agencies.
Among the powers bestowed upon the FSOC is the authority to designate nonbank firms as systemically important financial institutions (SIFIs). Firms given the “systemically important” tag are regulated by the Federal Reserve, which traditionally oversees banks, and are subject to new capital requirements.
To date, the FSOC has labeled three firms as SIFIs: American International Group Inc., General Electric Capital Corp. and Prudential Financial Inc.
The council’s critics have assailed the process, contending that the SIFI tag is tantamount to a finding that a company is “too big too fail,” which could position it for preferential treatment or even a government bailout.
The Chamber’s report argues that the designation has dominated the council’s agenda while leaving businesses confused about how they might be affected.
“Companies facing potential designation have little clarity about the lines between reasonable and unreasonable risk taking, what steps they can take to avoid crossing the line to designation, what designation would mean if they are designated, or what steps they could take in the future to become undesignated,” according to the report.
The Chamber recommended that the FSOC hew more closely to boundaries set by Congress in deciding which companies should be designated as systemically important.
The council should provide more clarity about the criteria it uses to make the designations, tailor those criteria to specific industries where necessary and provide a clear path for companies to apply for “un-designation,” according to the recommendations.
“There needs to be an off-ramp,” Hirschmann told reporters Monday.
Under current regulations, all designations are subject to annual review.
The FSOC’s voting members include the chairmen of the Federal Reserve, the Securities and Exchange Commission and the Commodity Futures Trading Commission.
But the agencies’ other members play no direct role in the FSOC’s business, according to the Chamber's report, which calls for the council to incorporate the views of a greater number of officials in the regulatory process.
Nonvoting members of regulatory agencies, now essentially shut out of the council’s work, should be brought in as part of working groups or in other advisory roles, the Chamber said.
The Chamber suggests raising the council’s voting threshold so that support from three-quarters of voting members is needed to issue regulations, rather than a simple majority.
In SIFI designation cases where there is dissent from a “primary regulator” whose jurisdiction includes the entity being tagged as systemically important, a second vote would be triggered 45 days later. Within that period, the dissenting council member would prepare a report outlining his or her objections.
Some parts of the designation process are spelled out in federal statute, and Hirschmann acknowledged that some of the recommendations would require congressional action. But the council has authority to accomplish most without any legislative changes, he said.
The Chamber’s report also urges the council to spend more time looking for ways to harmonize regulations issued independently by the various financial regulators and root out those that are unnecessary or redundant.
This story was updated with additional information at 5:02 p.m.