What You Need to Know
- The Financial Stability Oversight Council coordinates U.S. efforts to maintain financial system stability.
- The nonbanks getting attention now are mutual funds, not insurers.
- Discussion at the first Biden-era public meeting focused mainly on climate change.
Top U.S financial services regulators are worried about mutual funds and hedge funds, and that could create regulatory headaches for life insurers.
Members of the Financial Stability Oversight Council, the body responsible for keeping the U.S. financial system upright, talked about nonbank risk Wednesday, at the first FSOC meeting held since Joe Biden became president.
Treasury Secretary Janet Yellen — FSOC’s chairperson — said in her opening remarks at the meeting, which was held online, that she has concerns about what happens when open-ended money market mutual funds promise investors quicker access to their cash than the underlying assets offer.
The U.S. Securities and Exchange Commission already has been studying how money market funds performed in March 2020, when news of the U.S. COVID-19 lockdowns hit, Yellen said.
“As a next step, I have asked for an interagency assessment to determine if additional measures should be taken to address this financial stability vulnerability, and, if so, to develop recommendations for the council,” Yellen said.
Yellen serves on FSOC alongside the heads of all federal financial services regulatory agencies, such as the Federal Reserve Board and the National Credit Union Administration.
The list of FSOC members also includes three members with an interest in insurance: Thomas Workman, who serves as the council’s “independent member with insurance expertise”; Steven Seitz, director of the Federal Insurance Office; and Eric Cioppa, superintendent of the Maine Bureau of Insurance, who represents state insurance regulators.
Workman is a voting FSOC member. Seitz and Cioppa are non-voting members.
Life Insurers and FSOC
Yellen did not mention life insurers, but Gregg Gelznis, associate director at the Center for American Progress, a think tank with strong ties to the Biden administration, wrote in a commentary posted Wednesday that FSOC should change the process it now uses to designate nonbanks as systemically important.
Congress created FSOC with a provision in the Dodd-Frank Act, a law that was adopted during the administration of former President Barack Obama, in response to the financial system problems that occurred before and during the 2007-2009 Great Recession.
FSOC provision drafters were worried that federal regulators had trouble seeing what was going on partly because they had focused mainly on regulating the banking and securities industries and had little role in overseeing some other types of financial institutions, such as life insurers.