The House Committee on Financial Services reported the Financial Stability Oversight Council Reform Act (H.R. 3340; H.Rept. 114-473) on March 23, 2016. Sponsored by Representative Tom Emmer, this act would (1) make the budget of the Financial Stability Oversight Council (FSOC) and its permanent staff (called the Office of Financial Research, or OFR) subject to the appropriations process, (2) increase the frequency of required annual reports of the OFR, and (3) require notice and comment procedures before OFR issuance of proposed rules, proposed regulations, and research reports.
The FSOC is a council of the heads of federal financial regulatory agencies, state financial regulatory agency representatives, and an insurance expert. It facilitates communication and cooperation among financial regulators, designates firms and financial market utilities as being of systemic importance, and makes nonbinding recommendations to address threats to financial stability. In addition to the staff of their own agencies, the members of the FSOC are also supported by a permanent staff, the OFR. Although technically housed in the Department of the Treasury, the OFR's funding is derived from assessments on systemic financial firms and financial market utilities, including those designated as such by vote of the FSOC. These assessments are made available to the OFR immediately upon receipt, and do not require subsequent appropriations during the budget process. The director of the OFR consults with the Secretary of the Treasury (chair of the FSOC) in determining the OFR's budget.
The method of agency funding, an independent funding source as opposed to annual appropriations, may involve a trade-off between independence and accountability. The independent funding of the FSOC and the OFR are similar to some other federal agencies that have dedicated revenues, but not all. For example, the Federal Reserve Board (FRB), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC) raise funds independently of general revenues and do not require those funds to be appropriated back to these agencies. Arguably, this funding method preserves these agencies' independence from the political process, and in the view of some allows them to pursue policies that require expert knowledge and longer-term goals. In contrast, some agencies, such as the Patent Office, also have some independent revenue sources, but still require funds to be appropriated to them during the budget process. Arguably, requiring agencies to be part of the appropriations process, even if they have independent revenue sources, allows for more agency responsiveness to congressional concerns and more effective congressional oversight due to the direct congressional budgetary control and additional opportunities to question agencies during appropriations testimony.
The FSOC and OFR are required to provide annual reports to Congress that detail their activities, analyze threats to the financial stability of the United States, and make recommendations for preserving financial stability. In addition, the Dodd-Frank Act (P.L. 111-203) directs the OFR to collect data and monitor the financial system, provide confidential research to the FSOC, and promote and publish research on financial stability. Under H.R. 3340, the OFR would have to submit quarterly reports on the OFRs full-time-equivalents (FTEs); obligations by office, class, and activity; and actions taken to achieve the OFR's mission and goals. Arguably, more frequent reporting could support more effective congressional oversight. In contrast, more frequent reporting might burden the agency with administrative duties that take away from the OFR's mission. Much of the OFR's data collection and system monitoring mission is intended to be confidential to avoid contributing to unwarranted panics, so more frequent public oversight of these activities (distinct from the OFR's own budget and staffing) may cause unintended consequences, although some testimony could be provided to Congress in closed session.
The Financial Stability Oversight Council Reform Act would subject OFR activities to notice and comment requirements. H.R. 3340 would require the OFR to provide notice not less than 90 days before issuing any proposed rule, regulation, or research report. Although the OFR does not regulate the activities of firms that are designated systemically important, it can collect data from them if there is no existing source of data from their primary regulators or in the public domain. The 90-day notice would apply to OFR data collection rules, although the OFR already used notice and comment when it proposed a legal entity identifier (LEI) as part of its data collection mission.
The 90-day notice rule would also apply to the OFR's occasional public research reports, which have not been subject to notice and comment in practice up until now. Under the Dodd-Frank Act, the OFR not only provides confidential research support to members of the FSOC, it also promotes and issues research on financial stability. On the one hand, OFR research reports are not binding rules of general applicability and so may not be the type of activity generally subject to notice and comment. On the other hand, OFR research interest in an area may be a prelude to federal regulatory changes. Because financial markets are forward looking, public knowledge of OFR research activity could affect prices and liquidity in some markets. This concern was raised, for example, when the OFR issued a report on asset management and financial stability in September 2013.
The Congressional Budget Office (CBO) scored H.R. 3340 on December 1, 2015. CBO found that the bill would likely reduce spending by $1.3 billion over the 2016-2025 period. CBO concluded that enacting H.R. 3340 would not increase net direct spending or on-budget deficits during the relevant time periods.