Alert August 04, 2009

Proposed Legislation Establishing Financial Services Oversight Council

As part of its financial regulatory reform program, the Obama Administration, through the Treasury, submitted proposed legislation to Congress that would establish a new Financial Services Oversight Council (the “FSOC”).  The FSOC would be comprised of the Secretary of the Treasury (who would serve as Chairman of the FSOC), the heads of the FRB and the FDIC, the Director of the new National Bank Supervisor (or, before its establishment, the Comptroller of the Currency and the Director of the Office of Thrift Supervision), and the heads of the new Consumer Financial Protection Agency, the SEC, the CFTC, and the Federal Housing Finance Agency.

The designated purposes of the FSOC are: (1) to advise and make recommendations to enhance the integrity, efficiency, orderliness, competitiveness and stability of U.S. financial markets and maintain investor confidence; (2) monitor the financial services marketplace to identify potential threats to the stability of the U.S. financial system; (3) facilitate inter-agency information sharing and cooperation concerning domestic financial services policy developments, rulemaking, examinations, reporting, enforcement actions and other matters; (4) advise the FRB on designation of Tier 1 financial holding companies and systemically important financial market utilities; and (5) provide a forum for discussion and analysis of emerging issues and resolution of jurisdictional disputes.

The FSOC would meet at least quarterly and would have a permanent staff within the Treasury.  The FSOC would have no independent enforcement authority.  In addition, under the proposed legislation, the FSOC would be required to submit annual reports to the House Committee on Financial Services and the Senate Committee on Banking, Housing and Urban Affairs, in which it would identify significant financial market developments and potential emerging risks.

Some members of Congress, the Chairman of the FDIC and other commentators have proposed that the FSOC’s advisory and consultative role be strengthened substantially to provide a more robust counterweight to the authority of the FRB.