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Prepared Statement of CFPB Director Rohit Chopra on the Financial Stability Oversight Council's 2023 Annual Report

Thank you, Secretary Yellen. Nine months ago, several large domestic systemically important banks (DSIBs) failed. The stress in the financial system led policymakers to take emergency actions to halt the contagion.

One of the key lessons of the DSIB failures was that regulators had hamstrung themselves in the years prior and had not used legal authorities to protect the public as contemplated by federal law. Another lesson was that just a handful of large players can create chaos in the system. I am pleased that this year’s annual report clearly highlights certain risks and sets us all on a path for actually using our legal authorities, rather than relegating them to dead letter law.

Risks of Today and Tomorrow

Of course, it is tempting to focus on the risks of the past, but it is clear that certain risks are growing each day and into the future. Importantly, we cannot focus solely on large pools of financial assets – we must also face the reality that large pools of data play a growing role in our financial system.

Large technology firms, including Big Tech firms, are leveraging their network effects in new ways. Some of these firms are larger than Wall Street’s most dominant players, and they have been creeping into the financial system by developing networks that move payments and “deposits,” serving as cloud infrastructure players that undergird the digital plumbing of much of the industry, and emerging as foundational models powering new uses of artificial intelligence. It is not enough to draft reports, we must also act.

Following the Law, Rather than Ignoring the Law

The Financial Stability Oversight Council also has a checkered record, including by hamstringing itself. Fortunately, this is changing. This year, the Council restored authority under Title I of the Dodd-Frank Act to subject financial players operating outside of the banking system to stronger financial stability safeguards. Despite the bailouts provided to shadow banks in the 2008 financial crisis, and again at the beginning of the pandemic, there are a total of zero firms presently designated for heightened scrutiny. Next year, we must turn to credibly implementing the authority. It is important that we make clear that this designation authority is not dead letter and will be used when warranted.

The Title I designation authority is not our only tool that has been dormant. The FSOC has two important authorities under Title VIII of the Dodd-Frank Act that could be used to strengthen the resilience of financial market utilities and payment, clearing, and settlement activities. I am pleased that we are actively evaluating the first-ever use of Title VIII authorities to address certain payment, clearing, and settlement activities.

I support the publication of this year’s annual report, as it describes some of these risks in more detail and highlights our plans for greater focus on digital technologies in 2024. But our annual report is not an end in and of itself. It is a roadmap for the regulatory agencies to use our individual and collective authorities to guard against future meltdowns. Thank you.