WASHINGTON (11/24/14)--A report released last week by the Government Accountability Office (GAO) has identified several ways the Financial Stability Oversight Council (FSOC) can enhance the accountability and transparency of its nonbank designation process.
The GAO was asked to perform the study because the designations can have "significant implications for the companies as well as the stability of the financial system," according to a statement from the agency.
The financial crisis revealed differences in supervision and regulation among financial institutions such as credit unions and banks and nonbank financial companies. Certain nonbank financial companies were subject to less stringent oversight than bank holding companies, according to the GAO, and some of those companies "posed a systemic risk during the crisis and were recipients of federal assistance."
The Dodd-Frank Act created the nonbank financial company designation to avoid regulatory gaps and minimize the risk of such a company threatening the stability of the financial system. As of September, the FSOC has determined that AIG Inc., GE Capital and Prudential Financial Inc. should be supervised by the Federal Reserve.
The FSOC employs a three-stage process and has an analytical framework for evaluating whether nonbank financial companies meet standards and for proposing and finalizing determinations.
The study identified three key areas in which the designation process can be enhanced:
"Making FSOC's designation process more systematic and transparent could bolster public and market confidence in the process and also help FSOC achieve its intended goals," reads the report.
According to the GAO, the U.S. Department of the Treasury has "neither agreed nor disagreed with the recommendations but said, in its capacity as council chair, that FSOC would consider the recommendations."