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Strategic Objective
Complete implementation of financial regulatory reform initiatives, continue monitoring capital markets, and address threats to stability
Strategic Objective
Overview
The Dodd-Frank Act addresses key gaps and weaknesses in the financial regulatory structure that contributed to the financial crisis. These reforms are designed to help better protect American families and businesses, level the playing field, and educate and protect consumers.
As a part of the Dodd-Frank Act, several new entities were established. Among these the Financial Stability Oversight Council (FSOC)[1], which is chaired by the Secretary of the Treasury and brings together federal financial regulators, state regulators, and other financial experts to monitor and address threats to financial stability. The Office of Financial Research (OFR)[2] sits within Treasury and provides the FSOC with critical data and analytical support to achieve its mission. The Federal Insurance Office (FIO)[3], also within Treasury, monitors all aspects of the insurance industry, including identifying issues or gaps in the regulation of insurers that could contribute to a systemic crisis in the insurance industry or the U.S. financial system.
While Treasury has made significant progress in implementing these reform initiatives, there is still work to do in solidifying their roles and functions within the regulatory landscape to help ensure that our financial system is more transparent, better capitalized, less leveraged, and far safer.
[1] Financial Stability Oversight Council. Available at http://www.treasury.gov/initiatives/fsoc/Pages/home.aspx
[2] Office of Financial Research. Available at http://www.treasury.gov/initiatives/ofr/Pages/default.aspx.
[3] Federal Insurance Office. Available at http://www.treasury.gov/initiatives/fio/Pages/default.aspx.
Progress Update
FY 2015 marked the fifth anniversary of the most far-reaching and comprehensive financial reforms since the Great Depression: the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). During the darkest moments of the 2008 financial crisis, the U.S. economy was contracting at the fastest rate in 50 years. By early 2009, companies were shedding more than 800,000 jobs a month and, eventually, the unemployment rate reached 10 percent. The crisis demonstrated that excessive risk-taking, low levels of capital, unsafe lending practices, and inadequate oversight within the financial system can have a real impact on the lives of all Americans. By enacting the Dodd-Frank Act, the U.S. Government set out to reform Wall Street to be more stable, transparent, and focused on serving customers.
Five years later, with nearly all of the major rules written, the financial system is safer, stronger, and more resilient. The economy is growing and unemployment rate has dropped to 5.0 percent as of November 2015. Regulators have modern, common-sense tools to protect taxpayers, and banks have more capital to cover potential losses. And since financial crises do not respect national borders, Treasury is working through the Group of 20 (G-20) and Financial Stability Board (FSB) to make sure that the Department’s high standards are implemented globally. This year, the FSB will finalize a new international standard on total loss absorbing capacity (TLAC) for globally systemically important banks and standards for higher loss absorbing capacity for globally systemically important insurers.
Monitoring for new risks to the financial system and the broader economy remains a top priority for Treasury and other regulators. For example, on October 15, 2014, the U.S. Treasury market experienced significant volatility. To better understand the sources of that volatility, Treasury, the Board of Governors of the Federal Reserve System, the Federal Reserve Bank of New York, the Securities and Exchange Commission, and the Commodity Futures Trading Commission conducted an analysis and issued a joint report in July 2015. The report analyzed a host of factors, including changes in global risk sentiment and investor positions, and those related to the evolution of Treasury market structure, in an effort to explain the events of that day. Treasury will continue to work with partners, including through the Financial Stability and Oversight Council (FSOC), to monitor the financial system and investigate any potential threats to financial stability.
