Karen Petrou: Do We Need the Financial Stability Oversight Council?
On Friday, the Biden Administration’s FSOC proved yet again that it deserved Rohit Chopra’s dismissive description as a “book report club.” As far as we can tell, all it has done for all of the last four years is issue some nice papers about digital assets and the payment system about which nothing was ever done and put forth dutiful annual reports along with two new systemic-designation standards with which it has since done absolutely nothing. We’ll take our usual look at this year’s annual report, but it will be even less relevant than usual because FSOC is likely to do at least as little in Trump 2.0 as it did with its own recommendations during Trump 1.0. Given this sorry record, should the Department of Government Efficiency eviscerate the Council?
Sure, why not if all FSOC plans to do is as meaningless as all is town over the past eight years. Still, Congress wasn’t wrong when it created a Council designed to force communication across super-siloed regulators and to look hard at nonbanks outside their reach. Indeed, as nonbanks increasingly dominate core intermediation and infrastructure functions, a forward-looking, effective FSOC would be a vital safeguard against market success derived principally from regulatory arbitrage.
Effective system-wide governance is not impossible. Late last month, the Bank of England showed what can and should be done to address systemic risk. Using the Bank’s authority to govern across the financial industry, it released a “System-Wide Exploratory Scenario” (SWES), essentially a financial-system wide stress …