FSOC: Threats to U.S. Market Stability Continue
In its annual report to Congress July 18, the Financial Stability Oversight Council identified several key ongoing threats to U.S. financial stability, including continued economic instability in Europe and the ending of numerous tax cuts and unemployment benefits at the close of 2012, The New York Times reported.
The council, which was created by the Dodd-Frank Act and consists of representatives from the Federal Reserve, the U.S. Department of the Treasury and the U.S. Securities and Exchange Commission, noted in its report that large financial institutions in the U.S. may still have concentrated exposures or complex trading systems that could result in large losses given a change in short-term interest rates.
The council also identified eight financial market utilities as “systemically important” and it wants to subject them to stricter oversight. Those include financial entities overseen by the SEC: the Depository Trust Company, the Fixed Income Clearing Corporation, the National Securities Clearing Corporation and the Options Clearing Corporation, the Times reported.
Others are overseen by the Commodity Futures Trading Commission and include the Chicago Mercantile Exchange, ICE Clear Credit, Clearing House Payments Company and CLS Bank International.
The council also would like to see greater tightening of mortgage servicing standards.
According to the Times, the council still sees the biggest threat as activities in the euro zone. “A systemic crisis in Europe, in which contagion and spillover effects spread widely among euro area countries and markets, represents significant risk for U.S. institutions,” the council noted in its report.
The FSOC also is concerned about how the expiration of individual tax cuts and extended unemployment benefits at the close of 2012 will impact financial stability if Congress fails to address them.
Read the FSOC’s 2012 annual report.