Alert September 18, 2012

Government Accountability Office Issues Report Assessing Financial Stability Oversight Council

The Government Accountability Office (the “GAO”) issued a report assessing the operation of the Financial Stability Oversight Council (the “FSOC”).  The FSOC was established by the Dodd-Frank Act and is designed to identify threats to the financial stability of the U.S., promote market discipline and respond to emerging risks to the stability of the U.S. financial system.

The GAO report recommended that the FSOC consider enhancing its management mechanisms in order to provide greater accountability and transparency.  In its report, the GAO offered a number of recommendations to strengthen the accountability and transparency of FSOC decisions and activities and to improve collaboration among FSOC members and with external stakeholders.  Among other recommendations, the GAO report noted that the FSOC should:

  • clarify responsibility for implementing requirements to monitor threats to financial stability across the FSOC;
  • develop an approach that includes systematic sharing of key financial risk indicators across FSOC members and member agencies;
  • develop a strategy to improve communications with the public;
  • maintain detailed records (such as detailed minutes or transcripts) of closed door sessions;
  • establish formal collaboration and coordination policies that clarify issues such as when collaboration or coordination should occur and what role FSOC should play in facilitating such coordination;
  • establish a collaborative and comprehensive framework for assessing the impact of its decisions for designating financial market utilities and nonbank financial companies on the wider economy and such entities; and
  • develop more systematic forward-looking approaches for reporting on potential emerging threats to financial stability in annual reports.

On a related note, following the SEC’s recent announcement that that the agency would not vote on money market fund reform proposals due to a lack of support from a majority of the SEC Commissioners (as previously detailed in the August 28, 2012 Financial Services Alert), the Systemic Risk Council, a private organization chaired by the former chair of the FDIC, suggested that the FSOC should take steps to implement reforms of the money market mutual fund industry.