The FSOC’s chief power under Dodd-Frank is its ability to cite specific companies as posing a threat to the economy should they fail. It is reeling from a legal setback last month that rejected its decision to label insurer MetLife Inc. as systemically important. While the government said it will appeal, the MetLife ruling has already undermined confidence in its designations.
After pressure from industry and Congress, FSOC long ago abandoned the possibility of labeling individual asset managers, such as Fidelity Investments or BlackRock Inc. Instead, the council has focused on flagging certain industry wide activities and products as posing undue hazards.
Fed Governor Daniel Tarullo said last year that asset managers might pose potential risks in a crisis if they are pushed into fire sales. He said new regulations might be warranted.
The FSOC asked the industry in 2014 for input on how the government should weigh activities that might be inappropriately risky, and some of the leading firms suggested this work should really be in the hands of the SEC. They also argued that their industry is different than banking and doesn’t pose a threat to the financial system.