Proposed new rules for financial stability risks in the US

At the FSOC meeting, chaired by US Treasury Secretary Janet Yellen, the proposed analytical framework for financial stability risk detection, assessment and response, as well as the Council’s proposed guidance on the identification of non-bank financial companies, were discussed.

In her speech here, Yellen, who recommended that the FSOC review the way non-bank firms are designated as systemically important institutions, said that current guidance published in 2019 creates inappropriate barriers as part of the detection process.

Yellen argued that this is not helpful or viable, arguing that some are based on an erroneous view of how the financial crisis started and the costs it entails.

Reiterating the message that the banking system remains intact with strong capital and liquidity positions, Yellen reminded that the recent turmoil in the sector showed the importance of emergency response authority.

Yellen also stressed the importance of a supervisory and regulatory regime that can help prevent the onset and spread of financial disruptions.

On the other hand, the FSOC unanimously decided to submit two documents, “Analytical Framework for Financial Stability Risks” and “Guidelines for Non-Bank Financial Firm Identification”, for public comment.

The council’s recommendations included improving the ability to address financial stability risks, providing transparency on how tasks will be performed, and ensuring a rigorous and transparent detection process.

Yellen emphasized that the FSOC remains committed to public transparency in its work, noting that these documents will better equip themselves to address risks to the financial system.