Thursday, June 23, 2011

House Leaders Ask for Audit of Financial Stability Oversight Council

House Financial Services Chair Spencer Bachus (R-AL) and Oversight and Investigations Subcommittee Chair Randy Neugebauer (R-TX) have asked the GAO to conduct an audit and report to Congress on the Financial Stability Oversight Council specifically, among other things, examining the Council’s use of quantitative and qualitative data to develop metrics for determining which investment funds and other non-bank financial institutions will be designated systemically important financial institutions and subjected to heightened regulation. In a letter to the Comptroller General, the Chairs said that, given the Council’s sweeping mission to monitor financial market stability and mitigate risks, Congress must fully understand its structure and decision making process in order to ensure the Council’s accountability. They noted that Section 122 of Dodd-Frank authorizes the GAO to audit the activities of the FSOC.

The study should also report on the Council’s staffing, operations and budget, including the ability of the SEC, CFTC and other FSOC members to consult with staff from their respective agencies on FSOC matters. In addition, the report should deal with FSOC procedures for dealing with comments to studies and proposed regulations. Chairman Bachus noted that in two Dodd-Frank mandated FSOC studies international competitiveness was given only a cursory assessment despite concerns expressed by Congress and regulated entities.

In addition, the study should examine the operation and plans for the Office of Financial Research, including an account of information requests made by FSOC of the Office to date and any plans to collect data from regulated entities. The House oversight chairmen also want the study to examine FSOC and Office of Financial Research plans for safeguarding proprietary information and consumer data, including data security infrastructure and post-employment policies. The Office of Financial Research was created by Dodd-Frank to develop the metrics and tools the Council and financial regulators need to monitor systemic risk.

Finally, and more broadly, with regard to each FSOC-proposed rule,the Chairmen want GAO to compile all documents and cost analyses used by FSOC to determine if the rule should be designated an ``economically significant regulatory action’’ or ``significant regulatory action under Executive Order 12866, which, among other things, requires that a regulation be proposed or adopted only upon a reasoned determination that its benefits justify its costs.