At its December meeting, FSOC approved the annual report for 2018. The annual report fulfills the Congressional mandate to report on the activities of FSOC, describe significant financial market and regulatory developments, analyze potential emerging threats, and make certain recommendations.
During the executive session of the meeting, FSOC discussed potential amendments to its interpretive guidance on non-bank financial company designations, including an activities-based approach for monitoring and addressing potential risks to the U.S. financial stability. FSOC is working to develop a proposal for public comment. In addition, FSOC heard an update from its digital assets and distributed ledger technology working group. Staff gave FSOC a presentation on the working group’s interagency collaboration, analysis, and information-sharing on these issues. FSOC also discussed the upcoming implementation of the financial reporting standard adopted by FASB for current expected credit losses (CECL). FSOC members discussed the independence of FASB, the implications of this change in financial reporting, and the member agencies’ plans for alignment of capital rules under their regulatory regimes.
The 2018 annual report highlights the following:
- Overall, risks to U.S. financial stability remain moderate, though they have evolved since the last annual report.
- Over the past year, FSOC member agencies have also taken steps to make financial services regulations more efficient and effective. Five agencies proposed changes to modify requirements under the Volcker Rule, without diminishing the safety and soundness of banking entities.
- FSOC remains focused on promoting market discipline to reduce the risk of future financial crises. While financial institutions may be more resilient to market disruptions due, in part, to the increased capital and liquidity requirements since the financial crisis, market discipline reduces the likelihood of future market disruptions resulting from unwarranted risk-taking.
- Due to the critical role central counterparties (CCPs) play in financial markets, effective regulation and risk management of CCPs is essential to financial stability. Consistent with the requirements adopted by financial regulators, CCPs have made considerable progress in improving risk management practices and providing greater transparency in their functioning.
Keywords: Americas, US, Accounting, Banking, Insurance, Securities, Annual Report, Meeting Readout, Financial Stability, FSOC, US Treasury