What is “FSOC”?

FSOC is the Financial Stability Oversight Council.

In 2010, Congress passed the Obama
Administration’s Dodd-Frank Wall Street
Reform and Consumer Act.

Please Keep Me Informed

MSGP advocates for common-sense financial regulation reforms. We’re on the side of Main Street businesses, workers, savers and investors.

Dodd-Frank marks a massive change in how the financial industry is regulated. It’s an
example of good intentions gone awry.

  • Dodd-Frank is big. The numbers are staggering: 2,319 printed-pages spawning  15 million
    words of new rules covering 13,789 pages. One rule is … 313 pages  long!
  • Dodd-Frank is bureaucracy: At least 6 Federal agencies and 10 regulators work  Dodd-Frank.
  • Dodd-Frank is simply … unwieldy.

In its unwieldiness, the Dodd-Frank Act
created a group called the Financial Stability
Oversight Council.

Also Called FSOC

In its unwieldiness, the Dodd-Frank Act
created a group called the Financial Stability
Oversight Council.

Someone is going to have to pay for what FSOC does – and that person is going to be you.

Yes. If you invest – for retirement, for college education, for anything – you’re going to pay.

Dodd-Frank is also going to impact America’s economy. The Congressional Budget Office
estimates that over the next 10 years the Dodd-Frank Act will take $27 billion directly from our
economy in new fees and assessments on lenders and other financial companies. Just the
man-hours alone are staggering. Look at this fact:

  • Regulators estimate that implementation of one regulation alone under  Dodd-Frank will
    require 6.2 million man-hours. And it goes on from there.

There are more examples, but those would pretty much fill this website.

The bottom line: Dodd-Frank is a spider web of costly regulations-regulating-regulations.
Costly inefficiencies.

And those costly inefficiencies will hit you – because the customer always pays.

The financial crisis of 2008-09 was bad, and we certainly don’t want to repeat it. But FSOC is not
the answer. It will not help prevent the next crisis.

Let’s take a closer look at FSOC to understand why.

FSOC the Cumbersome

FSOC is a group of officials appointed by the President and chaired by the
Secretary of the Treasury. It has 10 voting members and 5 non-voting
members.

FSOC’s main purpose is to identify and respond to risks and emerging threats.
to the stability of the U.S. financial system.

All sounds simple, right?

Sadly, it is not. Like many things government, FSOC was unnecessary. There were already many
financial regulators at both the federal and state level. FSOC added one more to the existing
cumbersome, overlapping and often conflicting pile of regulatory bureaucracies. Where FSOC fits
into this quagmire is complex.

Explaining it isn’t easy, but here goes:

FSOC is completely separate from all existing federal and state regulators. Although most of its members are heads of federal agencies or offices, FSOC’s members are individual presidential appointees. It has no agency members. That means, for example, that if the head of the stockmarkets regulator – the Securities and Exchange Commission – cannot attend a meeting or vote on some matter FSOC is considering, then the regulator of the markets where your savings for retirement or college tuition are probably invested is not represented at all. FSOC does not replace the existing regulator of any bank or non-bank financial company. FSOC’s regulatory activities are in addition to those of any existing federal or state regulator. And there is no guarantee that FSOC’s regulations will work in harmony with the rules issued by the existing regulator. They might conflict, leading to needless cost and confusion.

All this begs the question: Can FSOC force other regulators to do what
FSOC wants?

Technically, the answer is no. The FSOC cannot force an independent federal agency to act in
the way that FSOC would prefer. So, the FSOC could make one decision affecting the stock
markets, but a majority of the members of the Securities and Exchange Commission could vote
to take a completely different approach. Or the other way around. Either way, the result would
be costly confusion.

This brings us to the next question: Is it really possible that an FSOC
regulatory action could conflict with that of another federal or state financial
regulator?

The answer is: Yes.

FSOC’s authority overlaps with that of lots of other regulatory bodies. As a
result, it is possible that what FSOC elects to do (or not do) could conflict
with the decisions of another financial regulator.

What happens then? Which of those entities – FSOC or the other regulator – would prevail in the
event of a conflict?

That question is unresolved.

The Dodd-Frank Act doesn’t say and the courts have not been called upon to
decide.

So, for example, because the Dodd-Frank Act’s creation of FSOC did not limit or reduce the
SEC’s responsibilities, it is not clear whether the FSOC or the SEC approach would prevail if their
actions conflicted. Such a conflict is especially likely with agencies like the SEC and Commodity
Futures Trading Commission, whose members are, by statute, divided between the two principal
political parties.
An Administration’s appointees on FSOC would certainly hope that other federal regulators would
defer to them. But there’s no assurance that they woul – and it is far from clear that they should.
After all, there is absolutely no guarantee that FSOC will get it right.

How will FSOC’s new regulatory stew help you?

Good question. Let’s break it down.

Will added regulatory cost and confusion inspire companies to hire more people?

Almost certainly not.

Will companies absorb the new costs or pass them along to customers in the
form of higher fees?

They will be passed through – you will pay.

Will your savings be safer if FSOC decides your mutual fund should be regulated
by the Federal Reserve, on top of all the SEC’s existing regulation?

No. The value of your fund shares rises and falls depending on how the fund’s investments perform. And if you are ever dissatisfied with the returns you are earning, you can simply change funds. There are literally hundreds of choices. And remember: Unlike banks, mutual funds do not “fail.” The values of their assets just change. If a mutual fund manager ever does decide to cease doing business or to close a fund, the fund’s assets – your investments – are simply passed along to a new manager, assuming that that is what you want.

Oh – and does your mutual fund or asset manager threaten the U.S. financial
system?

No. You can be sure that they do not. Banks are a much, much greater risk to the financial
system. Funds are self-contained. Their assets are invested, not loaned out several times over the
way bank deposits are. A fund may do well or poorly. But if a fund – or its manager – does poorly,
that has no effect on the U.S. financial system as a whole. It simply means you would earn a
lower return on your investment if you chose to redeem your shares then.

All of this regulatory layering amounts to confusing government and a
tangled web of bureaucratic flowcharts, with plenty of territorial infighting
thrown in. It won’t prevent the next financial crisis. Unfortunately, it will
affect you!

And you should really care.

The ultimate bottom line: FSOC will affect your financial interests – and you will pay for it!

Good thing?

You must be kidding.