In this report, FedFin assesses the recommendations announced yesterday in the Financial Stability Oversight Council’s (FSOC) second annual report. While it generally focused on past accomplishments and remaining risks, the Council’s recommendations guide an array of important actions by member agencies and the Treasury. Important new FSOC recommendations instruct regulators to incorporate extreme interest rate risk (IRR) scenarios into stress testing, mandate new governance standards for complex trades, address cyber threats and bolster regulations for protecting customer funds deposited for foreign futures trading. The FSOC stands by Treasury and the FRB in pushing the SEC to act on MMF rules including a floating net asset value (NAV) and/or capital buffers, while also building the case for designating the industry as a systemic activity should other SEC commissioners block these rules. The FSOC recommendations also support the supervisory policy on tri-party repos announced yesterday by the Federal Reserve Bank of New York, with the Council rejecting industry proposals for reform and instead advocating a much faster timeline. This report assesses FSOC recommendations in detail and their likely impact on the regulatory agenda.
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