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The Financial Stability Oversight Council lacks the tools to comprehensibly respond to systemic risks to the nation’s financial system, the Government Accountability Office said, in a new report.
That, the GAO said, may take congressional action.
“Limitations in FSOC’s authorities may affect its ability to respond to systemic risk,” the GAO said.
“GAO maintains that aligning FSOC’s authorities with its mission to respond to systemic risk would help FSOC respond to risks that its current authorities do not effectively address,” the report stated.
FSOC has emerged as a controversial council during the Biden Administration, as the group has pushed member agencies, including the NCUA, to address the challenges that climate change poses to the financial system.
NCUA Vendor Authority
Although the report does not provide specific examples of how the council is hampered by such a lack in power, for the past several years, FSOC has recommended that the NCUA be given examination powers over third-party servicers used by credit unions.
However, FSOC does not have the authority to grant the agency examination rights; that would take congressional action.
In the report, the GAO said that FSOC also has never used the authority it does have to designate certain activities as systemically important. Instead, the council’s annual report includes a laundry list of recommendations it cannot enforce.
The report also said that FSOC often has failed to specify any individual agencies that are responsible for addressing key risks and that the council seldom provide specific timelines for implementation.
“However, even if they did, actions to respond to systemic risks lie in the hands of individual regulators because the recommendations are nonbinding,” the GAO said.
Finally, the GAO said that FSOC does not have a systemic approach for reviewing the effectiveness of its activities on a regular basis.
Republican Criticism
However rather than granting FSOC more power, House Republicans have been highly critical of the council—particularly on the issue of climate change.
In July, House Financial Institutions and Monetary Policy Subcommittee Chairman Rep. Andy Barr, R-Ky., said that as FSOC Chairwoman, Treasury Secretary Janet Yellen has repeatedly identified climate change as an emerging threat to financial stability.
“Following the administration’s posture on climate-related financial risk, regulators have begun inserting climate policies into bank regulation and supervision,” he said. “There is little transparency about regulators’ climate efforts and what occurs in Administration-led climate working groups or international global governance organizations.”
The House Financial Services Committee went on to pass H.R. 4283, a bill that would require banking regulators to report to Congress when implementing non-binding recommendations from Executive Orders or FSOC.
Senate Recommendations
But on the other side of the Capitol, Senate Banking Committee Democrats, led by Chairman Sen. Sherrod Brown, D-Ohio, have called on FSOC to take a more activist approach.
Following the March banking failures, Brown and his colleagues wrote a letter to Yellen calling for a full review of the regulatory framework that might have contributed to the failures.
“Under the broad authorities granted to the Council, we urge you to identify risks and vulnerabilities brought to light during this crisis and provide specific recommendations on regulation, legislation, or other actions necessary to address these threats,” they wrote.
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