FSOC Open Meeting

Financial Stability Oversight Council (FSOC)

Council Meeting – Open Session

Wednesday, January 21, 2015 

Key Topics & Takeaways

  • 3 Key Proposed Changes: The FSOC’s staff proposed recommendations in the following three areas: 1) earlier engagement with companies under review in Stages two and three; 2) increased transparency with the public; 3) additional clarity with designated firms through the annual review process.
  • Key Statements from the Council: FSOC Members, including Secretary Lew from the U.S. Department of Treasury, Chair Janet Yellen from the Federal Reserve Board, and Chair Mary Jo White from the Securities and Exchange Commission (SEC), all expressed their support for the proposals and commented that they look forward to the Council’s consideration of a formal proposal by the next meeting.
  • Interest Rate Benchmark:   Treasury staff discussed alternatives to LIBOR, arguing that alternatives would give “the market choice over which rate to use” and “avoid the problem of replacing LIBOR and then having all contracts have to settle to a new rate.”


  • Jacob J. Lew, Secretary of the Department of the Treasury (Chairperson of the Council)
  • Janet L. Yellen, Chair of the Board of Governors of the Federal Reserve System
  • Mary Jo White, Chair of the Securities and Exchange Commission 
  • Matthew Rutherford, Acting Under Secretary for Domestic Finance, Department of the Treasury
  • Patrick Pinschmidt,Treasury Deputy Assistant Secretary, Chair of the FSOC Deputies Committee, U.S. Department of Treasury
  • FSOC Members

Proposed Changes to Designation Process for Nonbank SIFIs

In his opening remarks, Secretary Jacob Lew from the U.S. Department of Treasury announced that the Financial Stability Oversight Council (“FSOC” or “Council”) would review proposed changes to the Council’s process for designating nonbank financial institutions as systemically important and discuss benchmark reforms. Lew then reminded the Council and the public of the regulatory shortcomings that occurred before the passage and implementation of the Dodd-Frank Act. In his view, it is important to have a regulatory mechanism to look across all sectors, and said the Council has the unique ability to bring sector-wide regulators together to address financial threats. Lew emphasized that designating firms as systemically important is “not taken lightly” and described the FSOC’s existing review process as “rigorous.” Lew, however, acknowledged that the FSOC is a “young organization” and stated that the Council will continually look to improve its processes.  

Specifically, Lew announced three types of changes under the Council’s consideration, including: (1) earlier engagement with firms; (2) increased transparency with the public; and (3) additional clarity with firms through annual reviews. He then turned it over to Acting Under Secretary for Domestic Finance Matthew Rutherford and Deputy Assistant Secretary Patrick Pinschmidt, to discuss the FSOC’s industry outreach efforts and the specifics of the proposed process changes that the staff is recommending for FSOC adoption.  

Earlier Engagement

Pinschmidt, Chair of the FSOC Deputies Committee, stated that the staff recommends that the FSOC increase engagement with companies under review, starting in stage two of the designation process.  He stated that the FSOC should notify a company in stage two and provide a list of the information under consideration. At this point, Pinschmidt said, a company may submit any information they find relevant to the FSOC.  Pinschmidt added that companies should receive a notification if the FSOC decides not to advance the company to stage three. In stage three, Pinschmidt said companies should have a meeting with the Deputy Council of the FSOC. He added that the FSOC should also have increased engagement with the company’s primary regulators before stage three. 

Increased Transparency

Pinschmidt also stated that the staff recommends the FSOC increase transparency by making more information available to the public regarding how the Council views the metrics in stage one, and the specific factors that caused the FSOC to designate a firm as systemically important.  He also stated that the Council should confirm that a company is under review, if the company has already stated publicly that they are under review.  He acknowledged the need for additional information to be made public in order to allow other companies to conduct their own analysis, while also ensuring that the FSOC is protecting sensitive information. As part of this effort to increase public information, Pinschmidt added that the FSOC should publish the number of banks and nonbanks under review. 

Annual Reviews

According to Pinschmidt, the staff recommends that the FSOC process should allow firms to meet with staff and have a chance to present any relevant information during the annual review process, including, for example, market changes and restructurings. In addition, Pinschmidt stated that the Council should provide designated companies with an oral hearing every five years to allow firms to contest past designations. 

Council MembersComments

Lew repeated that the Council is a young organization and it is an important step for the Council to strongly support these changes and formalize them by the next meeting. 

Chair Janet Yellen from the Federal Reserve Board stated that the goal should be to make the process as transparent as possible. She recommended that the Council support these staff proposals and recognize the benefit to firms. 

Chair Mary Jo White from the Securities and Exchange Commission (SEC) said she supports this effort to improve transparency, conduct outreach to industry, and also continue to study the process. 

Interest Rate Benchmark

FSOC staff updated the Council on interest rate benchmark review efforts, including coordination with international regulators, which was a recommendation in the FSOC’s 2013 and 2014 annual reports. Staff presented an alternative to using credit benchmark rates and stated that a side-by-side benchmark system would offer alternatives to the London Interbank Offered Rate (LIBOR), creating enhanced stability in the markets. The staff added that “this gives the market choice over which rate to use and it also helps us to avoid the problem of replacing LIBOR and then having all contracts have to settle to a new rate.” He continued that “by having the two exist going forward, we avoid that significant potential hurdle.” He also reported that the Alternative Reference Rate Committee (ARRC) was helpful in coming up with this proposal. 

Closing Statement

Lew said confidence in interest rate benchmarks is needed in order for them to be relied up in the financial system. He called for a transactions-based approach and an overhaul of the governance structure of LIBOR. He also stated that a transactions-based approach would reduce the incentive to manipulate rates and make manipulation more costly. Lew added that he does not know what the International Organization of Securities Commissions (IOSCO) principles will look like and how they will influence the process. 

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