Committee hears calls to reform FSOC and Office of Financial Research after missed signals and political shifts
Loading...
Summary
Witnesses urged legislative change to the Financial Stability Oversight Council (FSOC) and its data arm, the Office of Financial Research (OFR), arguing the council’s designation tools and OFR’s early‑warning functions have underperformed and been subject to political swings.
Several witnesses urged Congress to revisit the statutory design of the Financial Stability Oversight Council (FSOC) and the Office of Financial Research (OFR), arguing the council’s designation authority and OFR’s data function have both fallen short of early‑warning and consistent oversight goals.
Tom Quadman of the Investment Company Institute and Ken Benson said FSOC’s method for identifying non‑bank systemic risks has oscillated across administrations and that an activities‑based approach would provide more predictable outcomes for market participants. Benson described the 2019 activity‑based direction as preferable to broad entity designations and said the FSOC Improvement Act (introduced by Reps. Foster and Huizenga) could provide clearer rules for designations.
Paul Kubiak and other witnesses argued FSOC and OFR failed to detect interest‑rate‑related vulnerabilities that contributed to regional bank problems in March 2023, and that OFR has not consistently delivered the early‑warning analysis Congress intended. Kubiak said member agencies of FSOC had the prompt corrective action powers to detect and mitigate the buildup of interest‑rate risk but did not exercise them.
Members discussed possible statutory fixes: adopt an activities‑based standard for systemic determinations, mandate improvements to OFR’s data‑gathering and analytic capabilities, and formalize parliamentary or procedural limits on how FSOC designations proceed. Republican and some centrist Democrats expressed interest in legislation that narrows FSOC’s discretion and clarifies process, while other members worried that removing designation powers could reduce regulators’ ability to respond to genuinely systemic non‑bank threats.
No legislative text was adopted at the hearing. Members requested additional technical responses and impact studies. Several witnesses recommended that Congress codify the council’s remit more tightly and that OFR’s role be evaluated to reduce duplication with existing agency research staffs.
