	Introduction: The Regulation of Bank and Non-Bank Financial Institutions

In 2010, the Dodd Frank Wall Street Reform and Consumer Protection Act ( P.L. The FSOC has its own permanent staff in the newly created Office of Financial Research (OFR) that collects data on the financial system and provides information and technical expertise to the FSOC. The FSOC has the ability to classify (or "designate" as used in the law and this report) certain non-banks as systemic, and therefore subject to prudential supervision by the Federal Reserve (the Fed). The DFA establishes a regulatory framework of which the FSOC is a consultative council. Coordination. The council facilitates communication among the heads of financial regulators. Data collection and evaluation . The FSOC establishes the criteria and designates which financial market utilities be subjected to safety and soundness regulation. Upon a determination of a threat to financial stability, a covered non-bank in danger of failing may under certain conditions be resolved by the FDIC rather than through the bankruptcy process. The FSOC may set aside some financial regulations for consumers if the rules might cause systemic risk, under certain circumstances. Financial Stability Oversight Council Mission

Section 112 of DFA lists three purposes of the FSOC: (1) identify risks to the financial system that may arise from large, complex financial institutions; (2) promote market discipline by reducing expectations of federal financial support for failing institutions; and (3 ) respond to emerging threats to the stability of the U.S. financial system. The chair has a number of powers and responsibilities related to FSOC meetings, congressional reports and testimony, and certain rulemakings and recommendations of the council. The Secretary's determination must address (1) the likelihood that the firm will default or is in default; (2) the likely effect of the firm's failure on financial stability; (3) the viability of private sector alternatives available to prevent the default; (4) the impact on the firm's creditors and other counterparties; (5) the likelihood of FSOC resolution avoiding or mitigating systemic risks, its likely cost to the general fund of the Treasury, and the potential of receivership resulting in excessive risk taking by the firm or its creditors and other counterparties (i.e., moral hazard); (6) a federal regulatory agency has ordered the firm to convert all of its convertible debt instruments that are subject to the regulatory order; and (7) the company satisfies the definition of a financial company. Examples of wholesale funding sources include money market mutual funds and repurchase agreements (repos). FSOC's Perspective
The 2013 annual report says that there has been significant improvement in mortgage markets, but additional progress is needed. FSOC's Perspective
The 2013 annual report noted several initiatives to address operational issues. Interest Rate Risks: Especially Rising Rates and Benchmarks33

Issue Area
Future interest rate changes may be a source of financial instability. Even if rates rise for the "wrong" reason, a second credit crunch, the FSOC notes that the measurable financial resilience of major banks (such as capital levels and measures of liquidity) have improved. Exposures to Risks from Other Countries36

Issue Area
Financial markets are global; therefore, financial instability overseas can threaten financial stability in the United States. FSOC's Perspective
The 2013 FSOC report addressed several issues related to global financial stability. Government-sponsored enterprise (GSE) —GSEs are private companies with government charters. In the United States, the Fed has this role. 111-203 ) to support the Financial Stability Oversight Council and member agencies by collecting and standardizing financial data, performing applied and long-term research, developing tools for risk measurement and monitoring. In other circumstances, systemic risk is defined as the risk that the linkages between institutions may affect the financial system as a whole, through a dynamic sometimes referred to as contagion.
The Financial Stability Oversight Council (FSOC) was created by the Dodd-Frank Wall Street Reform and Consumer Protection Act (DFA; P.L. 111-203) in 2010 as part of a comprehensive reform of banking and securities market regulators. The council is charged with monitoring systemic risk in the financial system and coordinating several federal financial regulators. The 113th Congress may wish to monitor the performance, rulemaking, and policy recommendations of the council.
This report describes the mission, membership, and scope of the FSOC. It provides an analysis of several major policy issues related to the FSOC that may come before the 113th Congress.
The DFA establishes a regulatory framework of which the FSOC is a consultative council. The new regulatory regime incorporates several policy tools to address systemic risk. The FSOC facilitates communication among financial regulators, collects and evaluates financial data to monitor systemic risk, and designates which financial institutions and financial market utilities will be subject to prudential regulation by the Federal Reserve Board (the Fed). Upon a determination of a threat to financial stability, a covered non-bank financial institution in danger of failing may under certain conditions be resolved by the Federal Deposit Insurance Corporation (FDIC), rather than through the bankruptcy process. The FSOC may under certain circumstances set aside some financial regulations for consumers if the rules create systemic risk.
The Office of Financial Research (OFR), a permanent staff of financial experts, supports the members of the FSOC. The OFR processes, monitors, and analyzes financial data gathered from member agencies and collected from reporting firms. The OFR contributes to the annual report issued by the FSOC. In the 2013 annual report, the OFR noted a number of positive trends, including increased capital levels and liquidity among financial intermediaries.
However, the 2013 report includes several areas of continuing concern. For example, several sources of wholesale funding (such as money market mutual funds and repurchase agreements) remain vulnerable to the risk of runs or fire sales. The housing finance system still relies on government support, although financial trends for the government-sponsored enterprises (GSEs) have improved. A number of operational issues, such as information technology and resilience against cyber-attacks, are ongoing concerns. Interest rates create additional concerns, including the reliability of benchmarks such as LIBOR, and the exposure of financial intermediaries to significant losses should market interest rates rise (sometimes referred to as yield spikes). Long-term budget issues, so-called fiscal imbalances, remain a concern although revenues have recently been rising as general economic conditions improve in the United States. Finally, the 2013 annual report discusses several factors in other countries that could negatively affect financial stability in the United States if conditions overseas deteriorate, including the resolution of European financial turmoil and Japanese macroeconomic policies.
This report is intended to be used as a reference by congressional staff working on financial issues. The macroeconomic policy rationales for various financial crisis-related issues are summarized, and a glossary is provided to assist in understanding technical terms. This report is not intended to be read from cover to cover, but instead may be more useful as issues related to the FSOC arise.