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Council votes to enhance transparency policy and Council governance
The Financial Stability Oversight Council (Council) has unanimously approved its 2014 annual report, which was developed collaboratively by the members of the Council and their agencies and staffs. Under the Dodd-Frank Act, the Council must report annually to Congress on a range of issues, including significant financial market and regulatory developments, potential emerging threats to the financial stability of the United States, and the activities of the Council.
The report must also make recommendations to promote market discipline; maintain investor confidence; and enhance the integrity, efficiency, competitiveness, and stability of U.S. financial markets.
“One of the critical lessons from the financial crisis was recognizing the importance of detecting systemic risks and ways to mitigate them,” said Treasury Secretary Jacob J. Lew. “The Council’s annual report is an important part of that ongoing work.”
In its fourth annual report, the Council’s findings are organized around nine themes, highlighted in the executive summary, which recur throughout the report:
· The vulnerability to runs in wholesale funding markets, including tri-party repo and money market mutual funds, that can lead to destabilizing fire sales.
· Developments in financial products, new business practices, and the migration of certain financial activities outside of the regulatory perimeter.
· Potential risk-taking incentives of large, complex, interconnected financial institutions.
· The reliance on reference rates that may be susceptible to manipulation, such as the London Interbank Offered Rate (LIBOR) and foreign exchange rate benchmarks.
· The need for financial institutions and market participants to remain vigilant in relation to potential interest rate volatility.
· Cyberthreats and the increase of trading-related operational outages and incidents that could cause disruptions to markets and the financial system.
· Potential risks to U.S. financial stability and economic activity from financial developments abroad.
· The importance of closing financial data gaps and improving financial data quality.
· The need for significant reform in the housing finance system, including increased private capital, a reduction in the footprint of government-sponsored enterprises, and improvements in mortgage finance market infrastructure.
The Council also voted to adopt enhancements to its transparency policy and bylaws for its Deputies Committee. The Council has recognized the importance of transparency since its first meeting in October 2010, when it voluntarily adopted its transparency policy. The Council is committed to conducting its meetings in public whenever possible and to releasing minutes for all its meetings. The Council is continually examining how it can open more of its work to the public by balancing its responsibility to be transparent with its central mission to monitor emerging threats to the financial system.
