Treasury Secretary Jack Lew on Monday said the super-group of financial regulators he leads will consider changes to its process for identifying system-wide threats to the financial sector, responding to criticism that the group lacks transparency.
Speaking after a closed meeting of the group, called the Financial Stability Oversight Council, Lew acknowledged that the council is “still a young organization” and that “it’s committed to improving the effectiveness of its work and engagement with the public.”
During the meeting, council members, who include all of the major federal financial regulators, had reviewed ideas for improving its process for identifying systemwide financial risks, he said, and will continue to seek outside advice and “begin to consider possible changes in the coming months.”
At issue is the council’s power to designate financial companies that aren’t banks as “systemically important financial institutions,” a label that subjects the businesses to higher capital standards and oversight from the Federal Reserve.
In recent months, many in the financial industry as well as congressional Republicans had criticized the council for lacking transparency in its deliberations and for moving too quickly to apply the label to companies without explaining their logic or allowing the companies to understand the regulatory consequences of being labeled systemically important. Earlier in the year, the Republican-led House passed a bill that would prevent the council from making any more designations without changing the process.
The council’s recent move to apply the label to life insurer MetLife has brought renewed attention to the issue. After being notified in early September that the council was moving to give MetLife the “systemically important” label, the company last week appealed the decision.
Lew noted Monday that the council voted to hold a hearing on an appeal of the designation. Although the Treasury does not disclose companies undergoing the designation process by name, MetLife is thought to be the only company it is looking at currently. MetLife would join insurance company Prudential, General Electric Capital Corp. and American International Group as non-bank systemically important companies if its designation goes through.
It was AIG’s 2008 failure that provided part of the motivation for Congress to create the council, a fact that Lew referred to in defending the designation process Monday. “We cannot forget that six years ago our financial system was in the grips of the worst crisis since the Great Depression,” Lew said. “Back then, large, complex non-bank financial firms were not subject to adequate oversight and they posed risks to financial stability. At the same time, there was not a single authority accountable for identifying, monitoring and addressing risks to financial stability.”
