Friday, September 20, 2024

ICBA CEO: Large nonbank financial institutions can 'pose outsized risks to the financial system'

The Financial Stability Oversight Council (FSOC) issued a proposed analytic agenda for financial stability risks to give the public an idea of how it processes threats to financial stability.  

The guidance is for certain nonbank financial institutions to be held to enhanced standards and be brought under Federal Reserve supervision.

Rebeca Romero Rainey, president and CEO of the Independent Community Bankers of America (ICBA), said in a news release she supports FSOC's guidelines and believes that large nonbank financial institutions should be held to similar standards as banks because they pose similar risks. The ICBA represents the community banking industry.

“ICBA applauds the Financial Stability Oversight Council’s unanimous votes to propose new interpretive guidance on nonbank financial company designations and an analytic framework for identifying potential risks to financial stability from certain activities,” Rainey said. “Large nonbank financial institutions that pose outsized risks to the financial system similar to those posed by large banks should be required to meet similar capital and liquidity standards. We support the publication of new guidance that will level the playing field, address risks to financial stability and provide transparency to the public."

FSOC agreed to release the proposed guidance for public comment in a unanimous vote taken on Friday, April 21. 

“Today’s proposals are important to ensuring the Council has a rigorous approach to identify, assess and address risks to our financial system,” Treasury Secretary Janet Yellen said. “The Council remains committed to public transparency regarding its work, and today’s proposals would make us better equipped to handle risks to the financial system, whether they come from activities or firms.”

Nonbank financial institutions include insurance companies, currency exchanges and venture capitalists, according to the World Bank.

The Treasury Department said FSOC's new proposed guidance would provide more clarity around FSOC's procedures and address risks to financial stability. The public has 60 days to provide comments on the guidance, the department's news release said. Established in 2010, FSOC is chaired by Yellen.

“ICBA looks forward to continuing to work with policymakers to address systemic risks and to ensure Washington’s response to the recent failures of large and risky financial institutions does not affect the community banks that continue to appropriately manage risk and do right by their customers," Rainey said.

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