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Sep 2014 – The threat posed by the FSOC and FSB

September 13, 2014


Last week, the Financial Stability Oversight Council (FSOC)—a US agency created by the Dodd-Frank Act—preliminarily designated MetLife, the largest US life insurer, as a systemically important financial institution, or SIFI. If the designation is finalized, MetLife will be turned over to the Fed for bank-like regulation.

As usual, there was very little media coverage of either the designation or its background. Accordingly, few people who follow financial news are aware that the FSOC was implementing a SIFI designation by the Financial Stability Board (FSB), a largely European group made up of central bankers and bank regulators. The US Treasury and the Fed are key members of both the FSOC and the FSB.

After the financial crisis in 2008, the G-20 leaders deputized the FSB to reform the international financial system. In addition to designating insurers like MetLife, the FSB has been using this authority to gain control of what it calls “shadow banks,” which it defines as “credit intermediaries not subject to bank regulation.” Specifically, it is targeting asset managers, investment funds, mutual funds, securities firms and hedge funds. Earlier this year, it initiated this effort by noting that large asset managers should be considered for SIFI designation. The FSOC then promptly took up the issue.

For the last several months, I have been writing op-eds that provide background on what FSOC and FSB are doing and why it is a threat to the independence and vibrancy of the US financial sector.

If you are interested in this subject, I have attached a selection of these articles below.

Very best, Peter

Peter J. Wallison
Arthur F. Burns Fellow in Financial Policy Studies
American Enterprise Institute

Op-ed on curbing the power of the FSOC (The Hill 2-24-14) Op-ed on FSOC and MetLife (WSJ 9-11-14) Op-ed on FSOC and US Capital Markets ( 8-8-14) Op-ed on FSOC Lacks Credibility on SIFIs (American Bkr 6-30-14) Op-ed on shadow banking and FSOC (WSJ 4-14-14)

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