FSOC Worries a Lot, Does Little
In this report, FedFin provides an in-depth assessment of the Financial Stability Oversight Council 2014 annual report on emerging risks. Although the report identifies several areas of concern, it does not lay out or even suggest what FSOC might wish done about them other than ongoing support for federal initiatives already well under way. Indeed, even areas where FSOC advisers like the Federal Insurance Office have recommended action – e.g., federal standards for private mortgage insurance – are referenced only by citing original sources, not by suggesting next steps. Nevertheless, some new worries – reinsurance captives, REITs, and carry trades – are analyzed, suggesting potential FSOC scrutiny and, perhaps, rules or supervisory standards from FSOC member agencies. FSOC is careful only to reference FDIC action on orderly resolution, not to assess its likely effectiveness. It similarly calls for long-term housing-finance reform without suggesting what FHFA should do beyond current actions such as the common securitization platform. No insight into action on possible sectoral or specific designation for asset managers is provided, nor is there any guidance on SIFI designations beyond that already signaled for MetLife. FSOC’s approach is almost exclusively a capital-markets and wholesale-finance one, with consumer finance addressed principally with regard to an iteration of recent CFPB actions. As a result, FSOC does not address potential systemic issues as retail-payment systems are being reconfigured and mortgage finance is discussed only with regard to servicing-right sales to non-banks.
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