WASHINGTON — Top financial regulators said Wednesday they believe changes should be made to the way big financial firms are chosen for stricter oversight.
Members of the Financial Stability Oversight Council voiced support for changes recommended in a staff report including notifying companies earlier in the process that they could be designated, a step that would give them more time to challenge the designation. The proposals would also provide more information on the review process to the companies and the public.
The council did not take any final action but members including Treasury Secretary Jacob Lew and Fed Chair Janet Yellen expressed support for the proposals, which are coming at a time of increased efforts to roll back the reforms passed after the 2008 financial crisis.
Lew said he strongly supported the changes and also said it would be a “grave mistake” to dismantle the reforms included in the 2010 Dodd-Frank Act.
“I am committed to make sure that does not happen on our watch,” Lew said.
The council was created by the Dodd-Frank law to provide greater coordination between the government’s numerous financial regulatory agencies in an effort to better spot threats to the financial system. But many Republicans, who now control both the House and Senate, have objected to key portions of Dodd-Frank and have vowed to seek legislative changes.
Sen. Sherrod Brown, D-Ohio, voiced support for the council’s efforts to improve the oversight process, saying the panel was needed to “prevent risky Wall Street practices from ever again putting our economy on the brink of collapse.”
The changes being considered would cover the council’s power to designate large financial institutions that are not banks as systemically important and thus subject to greater regulatory oversight.
So far, the council has designated four such institutions. One of the companies, MetLife Inc., the largest U.S. insurance company by assets, said earlier this month that it would challenge the council’s decision in court.
Because of the council’s December designation, MetLife will be required to increase the cushion of capital it holds in reserve against losses, limit its use of borrowed money and submit to inspections by examiners. New York-based MetLife will also come under the supervision of the Federal Reserve. Its primary regulator has been New York state.
The other three nonbank financial firms that have been designated as systemically important and thus subject to increased oversight are American International Group Inc., General Electric Capital Corp. — the finance arm of General Electric Co. — and Prudential Financial Inc. Those three companies did not challenge their designations.
MetLife, which has filed suit in U.S. District Court in Washington, D.C., to overturn the designation, argued that the tougher requirements will force life insurance companies to raise the price of their products, reduce the amount of risk they take on or stop offering some products altogether.
During the closed portion of its meeting Wednesday, the council said it heard a presentation on the MetLife lawsuit from the Justice Department.