The House Chairs are troubled that sweeping power in this area has been invested in the FSB, which is an unincorporated Swiss association with no authority under U.S. law or treaty. In their view, the FSB’s semi-official status as an offshoot of the G-20 makes it an inappropriate forum for decisions of this importance. Noting that the FSB is a complete black box, the House Chairs do not believe U.S. sovereignty should be surrendered on financial regulation to what the call an ``international old boy’s club’’ that deliberates in secret.
The letter requests information on how FSOC’s designation process relates to the Board’s process and seeks assurance that decisions on the systemic importance of U.S. firms is not being outsourced to the G20. FSOC and the FSB are also asked to provide specific metrics to support the designation of non-bank financial firms, which need a clear definition of systemic risk. More broadly, FSOC and FSB designations should always be supported by a full factual record and rigorous analysis. Full transparency must be the hallmark of the designation process.
FSOC is asked to clarify the capital standards applicable to designate insurers. The source of uncertainty is the Collins Amendment in the Dodd-Frank Act. Senator Susan Collins (R-ME), author of the amendment, has said that she never intended it to apply to insurance companies. The capital standards were intended for banks, noted the Chairs, but the Fed has interpreted the Collins Amendment to require the application of bank capital standards to designated insurers. Noting that it is universally recognized that banking risks are different than the risks associated with the insurance business, the House leaders said FSOC should halt any further designation of insurers until this regulatory gap is resolved and it is clarified that insurers will not be subject to bank capital standards.
The letter also states that the SEC Chair and Fed Chair and other voting members of FSOC and the FSB should offer to meet with firms being considered for SIFI or G-SIFI designations, especially non-bank firms whose operations and business models may be unfamiliar to FSOC members who regulate banks and may have no particular background or expertise in non-bank areas. The current restricting of dialogue to staff levels makes it unlikely that the unique issues of these firms will be adequately considered. Finally, the House leaders emphasized that the FSB must provide greater transparency on all of its activities. For example, Board meetings should be open to the public and to Congress, and memoranda and other records on designations should be made publicly available.