Who Will FSOC Target as Systemically Important?

By Donna Borak

Despite calls by some lawmakers and businesses to delay regulators’ decision to designate certain nonbank firms as systemically risky, an interagency council voted Friday to move forward with the third and final phase of such a plan. The Financial Stability Oversight Council, headed by Treasury Secretary Tim Geithner, met in a closed-door session to take a key step toward publicly declaring some nonbanks as systemically important financial institutions, or SIFIs. Analysts said the move is essential because it will give regulators the power to oversee nonbanks that have previously escaped close supervision. “FSOC is proceeding to implement one of the critical pieces of Dodd-Frank, which is nonbank SIFIs, to prevent the whole weight of the banking rules from empowering shadow banking,” said Karen Shaw Petrou, managing partner at Federal Financial Analytics Inc. “If all FSOC did was regulate banks, we would be laying the seeds for renewed systemic risk.”