House Financial Services Committee Holds FSOC Hearing

On June 21, 2016, the FSOC submitted its sixth 2016 annual report to Congress. The report’s findings and recommendations are organized around what the FSOC identifies as “key potential emerging threats and vulnerabilities”

The Committee on Financial Services held a hearing on Thursday, September 22, to receive the “Annual Report of the Financial Stability Oversight Council” and the Secretary of the Treasury’s testimony on the report. Treasury Secretary Jacob J. “Jack” Lew was the only witness at the hearing.

Financial Services Committee Chairman Jeb Hensarling (R-Texas) delivered an opening statement at the full committee hearing noting his disappointment with the FSOC for delivering what he calls “the equivalent of a summer rerun”.

“Its 2016 annual report is basically identical to its 2015 annual report, breaking little new ground and adding little new value,” said Hensarling. “FSOC, charged with identifying risks to our financial stability, continues to mention only in passing the need for fundamental housing finance reform. It fails to adequately analyze the substantial risk that Fannie Mae and Freddie Mac – institutions at the epicenter of the last financial crisis – pose for precipitating the next.”

Hensarling states that although FSOC’s annual report is disappointing, he still believes that the Financial Services Committee’s focus must remain on FSOC’s “frightening and likely unconstitutional powers”.

Following Hensarling’s remarks, Congresswoman Maxine Waters (D-California), Ranking Member of the Committee on Financial Services, discussed in her opening statement the importance of the FSOC in keeping the financial system safe.

“With Wall Street reform, we created the FSOC to look across the entire financial system, identify gaps that may exist between regulators, and take action to prevent another meltdown,” Waters said in her opening statement. “No longer would we allow banks to shop around for the weakest regulator or move money around the globe to escape regulation.”

In her remarks, Waters derided Republicans for their continued assault on the Dodd-Frank Act, particularly in light of the massive fraud uncovered at Wells Fargo this month. She questioned why “in this Committee, the answer is deregulation, and more opportunities for Wall Street to write the rules of the game” and pointed to Chairman Jeb Hensarling’s Wall Street deregulation bill, H.R. 5983, which received bipartisan opposition in Committee last week.

After the opening statements, the hearing was opened up to questions directed toward Lew and the FSOC’s report and current work.