GAO: Dodd-Frank’s stability council falling short

The interagency council established to monitor the economy for signs of distress after the 2008 financial crisis is falling short of its mission, the Government Accountability Office said Thursday

The GAO’s study presented as testimony during a congressional hearing, comes nearly four years after the Financial Stability Oversight Council — a product of the Dodd-Frank Wall Street reform law — was created to protect against a repeat of the Great Recession. Yet its core function has yet to be fully realized, GAO found.

“FSOC still lacks a comprehensive, systematic approach to identify emerging threats to financial stability,” the report concluded.

The GAO acknowledged progress the council has made in responding to a 2012 report, but issued a set of nine recommendations across three areas where investigators say improvement is still needed: identifying threats, maintaining transparency and coordinating its efforts.

The report urged the development of a “systematic approach” to the collection of information needed to assess potential threats to financial stability.

Further, GAO called on FSOC to formulate a strategy to improve communications with the public and keep detailed records from the council’s closed-door sessions.

The GAO also said the council should do more to consider the effect of its designation of certain companies as “systemically important.” FSOC has used its authority to attach the label to non-bank financial institution a handful of times.

Led by Treasury Secretary Jack Lew, the FSOC consists of 10 voting members, most of them the heads of financial regulatory agencies.

In testimony Wednesday before a House panel, Assistant Treasury Secretary Patrick Pinschmidt defended the FSOC’s record to date.

“The Council by its very existence fosters better communication and a more proactive response to emerging threats to financial stability,” Pinschmidt told members of the Financial Services Subcommittee on Oversight and Investigations.

“The actions of the Council and its member agencies have made the financial system more stable and less vulnerable to economic or financial stress,” he said.