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At the second public meeting of the Financial Stability Oversight Council (FSOC) on Tuesday, the Council received an update from its staff on improving oversight of the swaps and derivatives markets and its review of the mortgage industry. Treasury Secretary Timothy Geithner, the chairman of the FSOC, and its members also unanimously approved a notice of proposed rulemaking regarding which firms should be designated as “systemically important financial market utilities,” or FMUs. Also attending were Federal Reserve Chairman Ben Bernanke and SEC Chairman Mary Schapiro.
Opening the public portion of the Council gathering following a closed session, Geithner reported that over the “past few months we’ve made very significant progress toward reforming financial services here and abroad,” noting that the international community has made particular progress “toward convergence” of regulation on derivatives and hedge funds. He went on to say that by the “middle of next year,” the Council is expected to adopt rules for “comprehensive oversight” of the derivatives market, which “played an important role in the crisis.”
By January, Geithner promised that the Council will propose a new rule “governing the designation of non-bank financial institutions,” allowing the FSOC to “place under heightened oversight all financial institutions, not just banks, that could pose a threat to our financial system." Other priorities of the Council, he said, would be to provide “greater clarity” on the orderly liquidations of major financial firms, and greater transparency to mortgage disclosure forms and credit card agreements
Geithner said the FSOC had received “thousands and thousands of comments” on its first two requests for public comment following its first meeting on Oct. 1, at which it sought comments on the Volcker rule and on designating nonbank financial companies for heightened supervision.
Geithner then invited Michael Barr, assistant Treasury secretary of financial institutions, to provide an “interim update” on the Council’s work on mortgage servicing and foreclosure issues. Barr commented that "we’ve found widespread, inexcusable breakdowns in the foreclosure process" particularly the lack of controls in the industry, then said Council “examiners are expected to complete onsite reviews by the end of this year” in all 50 states.
The Council concluded its meeting by unanimously approving the notice of proposed rulemaking on designating systemically important financial market utilities (FMUs)—firms whose “failure could significantly threaten the financial system of the United States,” testified Lance Auer, the former New York Fed official on loan to Treasury, and then approved as well a “standing committees structure” for the FSOC that Geithner said would be released to the pubic at a future date.