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Statement of CFPB Director Rohit Chopra on the Proposed Restoration of the Financial Stability Oversight Council’s Authority and Regulatory Credibility

Today, we are restoring the Financial Stability Oversight Council’s most important tool to prevent future meltdowns and bailouts in the shadow banking sector.

One of the biggest problems we face when confronting the dangers in our financial system is regulatory amnesia. While the financial crisis ruined the lives of families across the country, memories fade quickly in Washington.

A key lesson of the 2008 crisis was the lack of attention paid to systemically important financial institutions that were not traditional commercial banks. Major nonbank financial companies received a free pass from key requirements that banks faced. Unsurprisingly, after the failure of Lehman Brothers, we saw massive bailouts of AIG, Goldman Sachs, Morgan Stanley, and more.

But regulators forgot. A key post-crisis reform was the ability for regulators to designate a nonbank financial institution as systemically important, which subjects the firm to stronger supervision and financial stability safeguards. The Financial Stability Oversight Council currently has zero firms on its roster of systemically important institutions under this core authority.

I’m not sure there’s anyone who really believes that these systemically important nonbanks have gone extinct. Put simply, market participants have believed the FSOC lacks regulatory credibility when it comes to nonbank designations. But now we are taking a step to change this.

In 2019, the FSOC effectively repealed the ability to designate systemically important nonbank financial institutions by adding an array of dubious process strictures.1 The goal was clear: prevent the FSOC from doing anything more than report-writing. Two former Treasury Secretaries and two former Federal Reserve Chairs, including Secretary Yellen, correctly predicted that the changes would “neuter the designation authority.”2

The proposed guidance we are voting on today, if finalized, will create a clear path for the FSOC to identify and designate systemically important nonbank financial institutions. Importantly, this will help to change the perception of market participants that the FSOC and its published reports are about talk and not action.

In addition, this action will accelerate efforts to identify potential shadow banks to be candidates for designation. We will be able to turn some of our work identifying risks in the nonbank mortgage and hedge funds sectors, for example, into more rigorous, firm-specific analyses that could lead to designations.

We must constantly be on the lookout for regulatory amnesia. At the CFPB, which was established in the wake of the 2008 crisis, nonbank supervision is among the most important work we do. I know all of us on this Council are grateful to Secretary Yellen for leading this effort to bring the Financial Stability Oversight Council back to life. I am pleased to support the proposed guidance.

Thank you.


  1. First, the 2019 Guidance required the Council to conduct an analysis that stacked the deck against using this authority, despite a clear Congressional determination that nonbank financial companies posing a threat to financial stability should face enhanced oversight. Second, the 2019 Guidance required the Council to evaluate the likelihood that a nonbank financial company would experience distress. This also directly contradicted the statutory language, which directed the Council to assume distress at the nonbank financial company when performing this evaluation. Finally, the 2019 Guidance required the Council to first exhaust a laborious “activities-based” review before proceeding to consider a designation, even if the risk would be most appropriately mitigated by a designation.
  2. In 2019, Janet Yellen, Ben Bernanke, Timothy Geithner, and Jacob Lew estimated the new procedural hurdles would lead to a designation process that could take more than six years to complete. .