Rescinding Trump’s Shields For Non-Bank Financial Firms Is A Crucial First Step

In response to the Financial Stability Oversight Council voting to publish a new analytic framework for designating non-bank financial firms as systemically important, Revolving Door Project Research Director Max Moran issued the following statement:

“This is a crucial first step from FSOC, but it cannot be the last step. Rolling back Trump’s framework just means that FSOC is allowing itself to see the financial system through a realistic lens. In Washington, allowing oneself to view the world realistically is a major achievement. But the point is to actually act on what one sees.”

“FSOC cannot be content just to reopen the door to non-bank SIFI designations; it has to actually designate and regulate major non-banks — perhaps most prominently, BlackRocknently, BlackRock — as the threats they are to financial stability.”

“Trump’s changes to FSOC were a stunning case of corrupt ideologues denying what’s right in front of them. It’s a simple fact that non-bank companies — asset managers, hedge funds, and the like — are some of the largest and most interconnected firms in the financial economy today. Any private firm with that level of power over the economy needs meaningful checks, but since most of our regulatory system is set up to oversee banks, these firms have skated by on what is, for these purposes, mostly a legal technicality.”

“Beginning to undo Trump’s absurd FSOC framework is a significant act. All of the FSOC member agencies should be proud. But once the framework is finalized — assuming the financial lobby doesn’t eviscerate it in the process — FSOC needs to actually use it. Indeed, failure to act with their new framework simply sets up conservatives and their Wall Street backers to roll it back when a non-bank firm does, inevitably, cause a systemic event. ‘This framework didn’t save us, so obviously it should be eliminated,’ will be their argument. That’s fallacious, but fallacies are the Wall Street lobby’s bread and butter.”

“In other words, if FSOC is going to actually protect our financial system, it needs to solidify that designating non-banks as systemically important is an unquestionably legitimate act, no matter how much the private sector howls. FSOC needs to prove that its legal authorities will not be questioned. The way it does so is by using all of the tools at its disposal.”