The Financial Stability Oversight Council voted unanimously on Wednesday to publish proposed interpretive guidance on how it designates nonbank financial companies, reinstating elements from its 2019 framework while adding new emphasis on economic growth and security.
Treasury Secretary Scott K. H. Bessent, who chairs the council, convened the meeting at the Treasury Department. In the open session, members reviewed revisions to the council’s 2023 guidance and approved releasing the proposal for a 45-day public comment period after it appears in the Federal Register.
“The Council has a vital mission – identifying and responding to potential threats to the stability of the financial system before they can translate into real economic harms,” Bessent said. “Today’s proposed guidance would return the Council to prioritizing an activities-based approach where we focus first on risks that arise from specific activities and practices across markets, rather than single out individual firms.”
Under the proposal, the council would incorporate economic growth and economic security into its risk analysis, prioritize addressing threats through an activities-based approach before considering entity-specific designations, and perform a cost-benefit analysis before any designation. It would also offer a pre-designation “off-ramp,” allowing companies or regulators time to mitigate identified risks and providing greater transparency in the process.
The changes aim to enhance analytical rigor and ensure designations provide a net benefit to financial stability.
In the executive session, the council received a quarterly financial stability monitor briefing covering developments in banking, markets, household finances, financial innovation, geopolitical risks, artificial intelligence investment, and the private credit sector. Members noted the system’s resilience and discussed ongoing monitoring efforts by their agencies.
Treasury staff also presented on new tools for monitoring household financial resilience, including consumer credit conditions and the impact of fraud.
The council heard an update from the Federal Reserve, Office of the Comptroller of the Currency, and Federal Deposit Insurance Corporation on proposals to simplify regulatory capital standards and other supervisory reforms.
The full proposed guidance and additional information about the council are available at fsoc.gov.
The Financial Stability Oversight Council, established in 2010 by the Dodd-Frank Wall Street Reform and Consumer Protection Act in the wake of the 2007-2009 financial crisis, is charged with the comprehensive monitoring of the stability of the nation’s financial system.
