McHenry to Yellen: Under the Current Leadership, We’ve Seen FSOC Expand its Regulatory Reach to Fit the Administration’s Political Priorities
Washington,
February 6, 2024 -
Today, the House Financial Services Committee, led by Chairman Patrick McHenry (NC-10), is holding a hearing with Treasury Secretary Janet Yellen on the annual report of the Financial Stability Oversight Council (FSOC). Republicans are bringing much-needed accountability to Secretary Yellen’s FSOC for its failure to fulfill its statutory mission of identifying and responding to emerging risks in pursuit of progressive priorities.
Watch Chairman McHenry’s opening remarks here.
Read Chairman McHenry’s opening remarks as prepared for delivery:
“Thank you, Secretary Yellen, for being here today in your capacity as Chair of the Financial Stability Oversight Council.
“FSOC’s purpose is straightforward: identify risks that could impact our financial stability, promote market discipline by eliminating expectations of bailouts, and respond to emerging threats.
“FSOC’s name pretty much sums up its mission.
“And yet, under the current leadership, we’ve seen FSOC expand its regulatory reach to fit the Administration’s political priorities.
“Unfortunately, FSOC appears to be part of the same troubling trend as Biden’s other financial regulators. When you’re distracted by shiny partisan objects, you take your eye off the ball.
“For example, aside from a stale mention of interest rate risk in the 2022 annual FSOC report, the FSOC did nothing to identify the emerging instability that set off the March 2023 banking sector turbulence.
“And indicators produced by the FSOC’s research arm—the Office of Financial Research—showed no signs of emerging risk even as the risk was indeed emerging.
“Secretary Yellen, we remember the panic Americans experienced last March. At the time, we worked together to quell concerns and provide a level-headed response in an uncertain time.
“The goal was to do no harm and regain stability without injecting politics—a goal President Biden clearly did not share when he took advantage of the situation to blame Republicans for a bipartisan regulatory reform bill.
“In real time, many members of this committee stood behind the regulators’ emergency actions with the expectation that we and the public would receive a full accounting of the decisions made that week.
“Now, nearly a year later, we still do not know that full story as FSOC and other administration officials have been less than transparent.
“To be clear, this does nothing to calm the nerves of an already skittish consumer. And with issues still plaguing some regional banks, it is irresponsible for you and your fellow regulators to continue to stonewall.
“While Republicans have worked to get the answers the American people deserve, FSOC has been busy making changes to enable it to serve as a roving regulator—something architects of the Dodd-Frank Act vigorously promised FSOC would not be.
“This includes relaxing the criteria used to designate non-bank financial companies as systemically important and putting them under Federal Reserve regulation.
“This proposal is based on the premise that our financial system would be best served with more oversight and control from the Federal Reserve—even beyond banks.
“It’s important to note that the gross incompetence of Federal Reserve and FDIC supervision is what led to the bank failures last March.
“However, prudential regulation is grounded in mitigating the specific risks that bank activity poses.
“These regulations are not necessarily appropriate for institutions that may engage in different activities and therefore pose different risks.
“Given the significant consequences associated with the systemic risk designation, Congress did not intend for this designation to be politicized nor weaponized.
“This move, taken with the apparent failure to identify and respond to emerging risks, calls into question the effectiveness of the FSOC.
“Secretary Yellen, I would encourage you and your fellow regulators to get back to the work you’ve been tasked with.
“We’ve already experienced what happens when you take your eye off the ball; the American people shouldn’t have to suffer through that again.”
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