FINANCIAL 

STABILITY 

OVERSIGHT 

COUNCIL

Further Actions Could 

Improve the Nonbank 

Designation Process

Report to the Ranking Member, 

Committee on Banking, Housing, and 

Urban Affairs, U.S. Senate

November 2014

GAO-15-51

United States Government Accountability Office
United States Government Accountability Office

Highlights of GAO-15-51, a report to the 

Ranking Member, Committee on Banking, 

Housing, and Urban Affairs, U.S. Senate 

November 2014

FINANCIAL STABILITY OVERSIGHT COUNCIL

Further Actions Could Improve the Nonbank 

Designation Process

Why GAO Did This Study

FSOC has authority to designate 

systemically important nonbank 

financial companies for enhanced 

supervision by the Board of Governors 

of the Federal Reserve System. GAO

was asked to review these 

designations because they may have 

significant implications for the 

companies as well as the stability of 

the financial system. This report 

examines how FSOC has managed 

the designation process to date and 

the extent to which FSOC’s process

has been transparent and systematic, 

among other objectives.

GAO analyzed FSOC documents, 

including the final rule and guidance on 

the designation process, bylaws, and 

nonpublic documentation supporting 

determination decisions. GAO also 

collected data about FSOC members’ 

participation in determination 

evaluations and interviewed FSOC 

staff, FSOC members and their staffs, 

officials of evaluated companies, and 

external stakeholders, including 

industry groups.

What GAO Recommends

GAO makes several recommendations 

to help enhance the accountability and 

transparency of FSOC’s determination 

process, such as tracking key 

evaluation information, including 

additional details in public 

documentation about the rationale for 

determination decisions, and 

establishing procedures to evaluate 

companies under both statutory 

determination standards. Treasury

neither agreed nor disagreed with the

recommendations but said (in its 

capacity as Council chair) that FSOC 

would consider the recommendations.

What GAO Found

The Financial Stability Oversight Council (FSOC) uses committees comprising

staff from member agencies to help it evaluate nonbank financial companies and 

determine if they will receive enhanced supervision. FSOC has developed and 

followed a process for making determination decisions that is, in part, systematic 

and transparent. FSOC published a final rule and guidance that establish a threestage process and an analytical framework for evaluating whether nonbank 

financial companies meet a statutory determination standard and for proposing 

and finalizing determinations. Generally, companies told GAO they were satisfied 

with FSOC’s communication with them during the evaluation process.

Financial Stability Oversight Council’s (FSOC) Designation Process

However, GAO identified key areas in which FSOC could enhance the 

accountability and transparency of the designation process.

• Tracking and monitoring. Federal internal control standards call for clear 

documentation of transactions and monitoring to assess the quality of 

performance over time. FSOC has not centrally recorded key processing 

dates, tracked the duration of evaluation stages, or collected information on 

staff conducting evaluations, such as the number or type of staff contributed 

by member agencies. Without such data, FSOC’s ability to effectively monitor 

the progress and evaluate the quality and efficiency of determination

evaluations is limited.

• Disclosure and transparency. FSOC’s transparency policy states its 

commitment to operating transparently, but its documentation has not always 

included certain details. For example, FSOC’s public documents have not 

always fully disclosed the rationales for its determination decisions. The lack 

of full transparency has resulted in questions about the process and may 

hinder accountability and public and market confidence in the process.

• Scope of evaluation procedures. FSOC has evaluated how companies 

might pose a threat to financial stability using only one of two statutory 

determination standards (a company’s financial distress, not its activities). By 

not using both standards when appropriate, FSOC may not be able to 

comprehensively ensure that it has identified and designated all companies 

that may pose a threat to U.S. financial stability.

Making FSOC’s designation process more systematic and transparent could 

bolster public and market confidence in the process and also help FSOC achieve 

its intended goals.

View GAO-15-51. For more information, 

contact Lawrance L. Evans, Jr. at (202) 512-

8678 or EvansL@gao.gov.
Page i GAO-15-51 FSOC Determinations

Letter 1 

Background 4

FSOC Manages the Determination Process through Its Committee 

Structure but Limited Recording or Tracking of Data May Hinder 

Its Ability to Monitor Performance 20

FSOC’s Determination Process Could Be Improved for Greater 

Transparency and Accountability 35

International Institutions and FSOC Have Similar Assessment 

Methodologies but Differ in Their Use of Quantitative Measures 47

Federal Reserve Plans to Tailor Its Supervision of Nonbank 

Financial Companies 52

Conclusions 56

Recommendations for Executive Action 58

Agency Comments and Our Evaluation 59

Appendix I Objectives, Scope, and Methodology 63

Appendix II Committees of the Financial Stability Oversight Council 66

Appendix III Comments from the Department of the Treasury 68

Appendix IV GAO Contact and Staff Acknowledgments 70

Tables

Table 1: Estimated Number of Staff Who Performed Companyand Industry-Specific Analytical Work for the Nonbank 

Designations Committee, by Financial Stability Oversight 

Council (FSOC) Member Agency, 2012 through July 2014 23

Table 2: Financial Stability Oversight Council (FSOC) Member 

Agencies Leading Company Evaluations for the Nonbank 

Designations Committee, 2011 through July 2014 24

Table 3: Status of Company Evaluations Conducted by the 

Financial Stability Oversight Council’s (FSOC) Nonbank 

Designations Committee, as of September 2014 29

Contents
Page ii GAO-15-51 FSOC Determinations

Table 4: Examples of Metrics and Analysis Used in the Financial 

Stability Oversight Council’s (FSOC) Evaluations of 

Nonbank Financial Companies 36

Table 5: Analytical Categories of Financial Stability Oversight 

Council (FSOC) and International Assessment 

Methodologies 48

Figures

Figure 1: Financial Stability Oversight Council (FSOC) 

Membership 5

Figure 2: The Financial Stability Oversight Council’s (FSOC) 

Determination Process Involves Multiple Stages and 

Votes by FSOC Members 7

Figure 3: Stage 1 of the Financial Stability Oversight Council’s 

(FSOC) Determination Process 8

Figure 4: Stage 2 of the Financial Stability Oversight Council’s 

(FSOC) Determination Process 10

Figure 5: Stage 3 of the Financial Stability Oversight Council’s 

(FSOC) Determination Process 12

Figure 6: Hearing Request and Final Determination in the 

Financial Stability Oversight Council’s (FSOC) 

Determination Process 15

Figure 7: Committee Structure of the Financial Stability Oversight 

Council (FSOC) 21
Page iii GAO-15-51 FSOC Determinations

Abbreviations

AIG American International Group, Inc.

Basel Committee Basel Committee on Banking

 Supervision

CFTC Commodity Futures Trading

 Commission

Dodd-Frank Act Dodd-Frank Wall Street Reform and

 Consumer Protection Act

FAQ frequently asked questions

FDIC Federal Deposit Insurance

 Corporation

Federal Reserve Board of Governors of the Federal

 Reserve System

FIO Federal Insurance Office

FSB Financial Stability Board

FSOC Financial Stability Oversight Council

GE Capital General Electric Capital Corporation

G20 Group of Twenty

IAIS International Association of

 Insurance Supervisors

IOSCO International Organization of

 Securities Commissions

MetLife MetLife, Inc.

NAIC National Association of Insurance

 Commissioners

Nonbank Designations Committee Designations of Nonbank Financial

 Companies Committee

OCC Office of the Comptroller of the

 Currency

OFR Office of Financial Research

Prudential Prudential Financial, Inc.

SEC Securities and Exchange

 Commission

Treasury Department of the Treasury

This is a work of the U.S. government and is not subject to copyright protection in the 

United States. The published product may be reproduced and distributed in its entirety 

without further permission from GAO. However, because this work may contain 

copyrighted images or other material, permission from the copyright holder may be 

necessary if you wish to reproduce this material separately.
Page 1 GAO-15-51 FSOC Determinations

441 G St. N.W.

Washington, DC 20548

November 20, 2014

The Honorable Michael Crapo

Ranking Member

Committee on Banking, Housing, and Urban Affairs

United States Senate

Dear Senator Crapo:

The 2007-2009 financial crisis threatened the stability of the U.S. financial 

system and the U.S. and international economy. The crisis also revealed 

weaknesses in the U.S. regulatory structure, including differences in the 

amount and nature of supervision and regulation among financial 

institutions such as banks, broker-dealers, and bank and nonbank holding 

companies. For example, certain nonbank financial companies were 

subject to less stringent oversight than bank holding companies. Some of 

these companies posed systemic risk during the crisis and were 

recipients of federal assistance.

In response to the crisis, the Dodd-Frank Wall Street Reform and 

Consumer Protection Act (Dodd-Frank Act) was enacted in July 2010.1

Among its regulatory reforms, the act established the Financial Stability 

Oversight Council (FSOC) to monitor the stability of the U.S. financial 

system and take actions to mitigate risks that might destabilize the 

system.2

 

1

Pub. L. No. 111-203, 124 Stat. 1376 (2010).

Congress gave FSOC a number of significant authorities to help 

it execute its broad mission, including authority to designate nonbank 

financial companies for supervision by the Board of Governors of the 

Federal Reserve System (Federal Reserve) and enhanced prudential

standards. According to the Dodd-Frank Act, nonbank financial 

companies are domestic companies or foreign companies that 

predominantly are engaged in financial activities (such as insurance 

companies, consumer finance providers, commercial lenders, asset 

managers, and investment funds) but that are not bank holding 

2

FSOC comprises 15 members generally representing federal and state financial 

regulators. The provisions of the Dodd-Frank Act dealing with FSOC are contained 

primarily in subtitle A of title I, §§ 111-123, codified at 12 U.S.C. §§ 5321-5333, and title 

VIII, codified at 12 U.S.C. §§ 5461-5472.
 

Page 2 GAO-15-51 FSOC Determinations

companies or certain other types of firms (such as registered securities 

exchanges, clearing agencies, and swap execution facilities).3 The 

designations are intended to help avoid the regulatory gaps that existed 

before the crisis and minimize the risk of a nonbank financial company 

threatening the stability of the financial system.4 As of September 2014, 

FSOC had determined that three nonbank financial companies—

American International Group, Inc. (AIG), General Electric Capital 

Corporation, Inc. (GE Capital), and Prudential Financial, Inc. 

(Prudential)—should be supervised by the Federal Reserve.5

Some members of Congress and others have raised questions about how 

and on what basis FSOC made its determinations.6 To help provide 

oversight of FSOC, the Dodd-Frank Act gave GAO authority to audit the 

activities of FSOC and entities acting on its behalf, including its decisionmaking processes related to nonbank financial company determinations. 

In prior work on the establishment of FSOC, we reported that FSOC’s 

management mechanisms to carry out its mission could be enhanced to 

provide greater accountability and transparency.7

 

3

The Dodd-Frank Act defines a foreign company as one that is incorporated or organized 

in a country other than the United States. Pub. L. No. 111-203, § 102(a)(4), 124 Stat 1376, 

1391 (2010) (codified at 12 U.S.C. § 5311(a)(4)).The act also states that a company is 

predominantly engaged in financial activities if either (1) the annual gross revenues 

derived by the company and all of its subsidiaries from financial activities, as well as from 

the ownership or control of insured depository institutions, represent 85 percent or more of 

the consolidated annual gross revenues of the company; or (2) the consolidated assets of 

the company and all of its subsidiaries related to financial activities, as well as related to 

the ownership or control of insured depository institutions, represent 85 percent or more of 

the consolidated assets of the company. Pub. L. No. 111-203, § 102(a)(6), 124 Stat 1376, 

1392 (2010) (codified at 12 U.S.C. § 5311(a)(6)).

You asked us to review 

the process that FSOC uses to designate nonbank financial companies 

4

The Dodd-Frank Act allows FSOC, on its own initiative or at the request of the Federal 

Reserve, to determine that a company organized or operating in such a manner as to 

evade FSOC’s designation authority shall have its financial activities supervised by the 

Federal Reserve if the company’s material financial distress related to its financial 

activities or the financial activities themselves would threaten U.S. financial stability.

5

In September 2014, FSOC made a proposed determination regarding a fourth nonbank 

financial company.

6

For this report, we use designation and determination interchangeably.

7

GAO, Financial Stability: New Council and Research Office Should Strengthen the 

Accountability and Transparency of Their Decisions, GAO-12-886 (Washington, D.C.: 

Sept. 11, 2012).
 

Page 3 GAO-15-51 FSOC Determinations

for Federal Reserve supervision and enhanced prudential standards. This 

report examines (1) how FSOC oversees and manages the nonbank 

financial company determination process; (2) the extent to which FSOC 

has followed a systematic process for designating nonbank financial 

companies; (3) how the analysis and criteria used in FSOC’s 

determination process compare with methodologies proposed by 

international institutions; and (4) the progress that the Federal Reserve 

has made in defining a supervision framework for designated nonbank 

financial companies.

To examine FSOC’s management of the determination process, we 

reviewed the Dodd-Frank Act, FSOC’s bylaws, our prior reports on 

FSOC, and other documents describing its organizational structure, and 

FSOC’s final rule and guidance outlining its determination process. We 

interviewed officials from FSOC member agencies, designated 

companies, and FSOC staff involved in coordinating and assisting the 

Council’s determination work. We collected information on staff 

contributions from FSOC and its member agencies. To address the extent 

to which FSOC used a systematic process in designating companies, we 

collected and analyzed documentation of FSOC’s determination reviews 

and decisions, including correspondence with nonbank financial 

companies. We reviewed documents on FSOC’s determination process 

and interviewed officials from FSOC member agencies and designated 

companies. To assess how FSOC’s determination process compares with 

international methodologies, we examined documents on the evaluation 

of global systemically important institutions from four international 

institutions: the Financial Stability Board (FSB), the Basel Committee on 

Banking Supervision (Basel Committee), the International Association of 

Insurance Supervisors (IAIS), and the International Organization of 

Securities Commissions (IOSCO). We interviewed FSOC member 

agency officials on the different approaches to evaluating nonbank 

financial companies. To determine the Federal Reserve’s progress in 

establishing a framework for supervising designated companies, we 

reviewed documents including statutory requirements and proposed and 

final regulations and interviewed FSOC and Federal Reserve officials. For 

more information on our methodologies, see appendix I.

We conducted this performance audit from October 2013 to November 

2014 in accordance with generally accepted government auditing 

standards. Those standards require that we plan and perform the audit to 

obtain sufficient, appropriate evidence to provide a reasonable basis for 

our findings and conclusions based on our audit objectives. We believe 
 

Page 4 GAO-15-51 FSOC Determinations

that the evidence obtained provides a reasonable basis for our findings 

and conclusions based on our audit objectives.

FSOC consists of 15 members (or principals)—10 voting and 5 nonvoting 

members (see fig. 1). The 10 voting members (including the heads of 

nine federal agencies) provide a federal regulatory perspective and the 

view of an independent insurance expert (who is appointed by the 

President with the advice and consent of the Senate).8

 

8

Although not all FSOC members represent federal agencies, in this report we use 

“member agencies” to represent all FSOC members, including their agencies, offices, or 

staff. 

The 5 nonvoting 

members, who serve in an advisory capacity, offer different insights as 

state-level bank, securities, and insurance regulators or as the directors 

of offices in the Department of the Treasury (Treasury)—the Office of 

Financial Research (OFR) and the Federal Insurance Office (FIO)—that 

were established by the Dodd-Frank Act. FSOC is chaired by the 

Secretary of the Treasury. As the chairperson of FSOC, the Secretary 

has certain powers and responsibilities related to FSOC’s meetings and 

reports and testimony to Congress. For example, the Dodd-Frank Act 

states that the chairperson may call for meetings of the Council and must 

testify before Congress at least annually to discuss the Council’s 

activities. The Secretary, in his or her capacity as chairperson of FSOC 

and in consultation with the other FSOC principals, also is responsible for 

regular consultation with the financial regulatory entities and other 

appropriate organizations of foreign governments or international 

organizations on matters relating to systemic risk to the international 

financial system.

Background
 

Page 5 GAO-15-51 FSOC Determinations

Figure 1: Financial Stability Oversight Council (FSOC) Membership

The Dodd-Frank Act requires that FSOC consider certain factors in 

making its nonbank financial company determinations. These factors 

include a company’s financial characteristics—such as the amount and 

nature of the company’s assets and the amount and types of the 

company’s liabilities—and factors such as the degree of existing financial 

FSOC Determination 

Process
 

Page 6 GAO-15-51 FSOC Determinations

regulation and the company’s importance as a source of credit.9

Additionally, the Dodd-Frank Act sets forth two determination standards—

FSOC can designate a nonbank financial company if FSOC determines 

that the company’s (1) material financial distress; or (2) the nature, scope, 

size, scale, concentration, interconnectedness, or mix of activities could 

pose a threat to the financial stability of the United States. Although a 

rulemaking was not statutorily required to implement this authority, in April 

2012, FSOC voluntarily issued a final rule and interpretive guidance that 

outline and clarify its authority to make determinations under section 113 

of the Dodd-Frank Act.10

FSOC’s final rule and guidance established a three-stage process for 

evaluating nonbank financial companies for possible designation as part 

of its overall determination process, as shown in figure 2. As its 

assessment of a company progresses through the three stages, FSOC 

conducts increasingly in-depth quantitative and qualitative evaluations 

that may lead to a proposed determination that the material financial 

The final rule and guidance, which were adopted 

following three rounds of public comment, also establish a process and 

an analytical framework for making determinations that incorporate the 

statutory considerations and determination standards.

 

9

For U.S. nonbank financial companies, the statutory considerations are (1) the extent of 

leverage of the company; (2) the extent and nature of the off-balance-sheet exposures of 

the company; (3) the extent and nature of the transactions and relationships of the 

company with other significant nonbank financial companies and significant bank holding 

companies; (4) the importance of the company as a source of credit for households, 

businesses, and state and local governments and as a source of liquidity for the U.S. 

financial system; (5) the importance of the company as a source of credit for low-income, 

minority, or underserved communities and the impact that the failure of such a company 

would have on the availability of credit in such communities; (6) the extent to which assets 

are managed rather than owned by the company and the extent to which ownership of 

assets under management is diffuse; (7) the nature, scope, size, scale, concentration, 

interconnectedness, and mix of the activities of the company; (8) the degree to which the 

company is already regulated by one or more primary financial regulatory agencies; (9) 

the amount and nature of the financial assets of the company; (10) the amount and types 

of the liabilities of the company including the degree of reliance on short-term funding; and 

(11) any other risk-related factors that the Council deems appropriate. For considerations 

of foreign nonbank financial companies, the list is similar but in certain aspects more 

specific to U.S. activities, including the extent and nature of the U.S. off-balance-sheet 

exposures; the importance of the company as a source of credit for U.S. households and 

businesses; the importance of the company as a source of credit for low-income, minority, 

or underserved communities in the United States; the amount and nature of the U.S. 

financial assets in the company; and the amount and nature of the liabilities of the 

company used to fund activities and operations in the United States.

1012 C.F.R. § 1310.1 et seq.
 

Page 7 GAO-15-51 FSOC Determinations

distress or activities of a nonbank financial company could pose a threat 

to the financial stability of the United States and that the company should 

be subject to Federal Reserve supervision and prudential standards.11

Figure 2: The Financial Stability Oversight Council’s (FSOC) Determination Process Involves Multiple Stages and Votes by 

FSOC Members

Stage 1. To identify companies that merit company-specific evaluation, 

FSOC applies a set of uniform quantitative thresholds to a broad group of 

companies generally considered to be nonbank financial companies (see 

fig. 3). The Council retains discretion to consider nonbank financial 

companies not identified by the Stage 1 thresholds for any reason, 

including a lack of available data in Stage 1.12

 

11In an emergency, FSOC can modify or waive any or all of the notices and procedures 

required by regulation, beginning with the notice of consideration of determination. 12 

C.F.R. § 1310.22; Dodd-Frank Act, Pub. L. No. 111-203, § 113(f), 124 Stat. 1367, 1401-

1402 (2010) (codified at 12 U.S.C. § 5323(f)). FSOC must determine that the waiver or 

modification is necessary or appropriate to prevent or mitigate threats posed by the

nonbank financial company to the financial stability of the United States and provide a 

written notice of the waiver or modification to the company no later than 24 hours after it is 

granted. 12 C.F.R. § 1310.22(a). At least a two-thirds majority vote, including the vote of 

the Secretary of the Treasury, is required to invoke the emergency exception. 12 C.F.R. § 

1310.22(e). The company is permitted an appeals process if it disagrees with the 

determination to waive or modify the requirements. 12 C.F.R. § 1310.22.

FSOC relies solely on 

12According to FSOC’s final rule and guidance, the Stage 1 quantitative thresholds were 

selected based on (1) their applicability to nonbank financial companies that operate in 

different types of financial markets and industries, (2) the meaningful initial assessment 

that such thresholds provide about the potential for a nonbank financial company to pose 

a threat to the financial stability in diverse financial markets, and (3) the current availability 

of data. 
 

Page 8 GAO-15-51 FSOC Determinations

information available through existing public and regulatory sources in 

this stage. A company automatically advances to Stage 2 if it meets the 

total consolidated assets threshold and any one of the other thresholds.13

Figure 3: Stage 1 of the Financial Stability Oversight Council’s (FSOC) Determination Process

a

FSOC intends to review the thresholds at least every 5 years and to adjust them as FSOC may 

deem advisable.

b

Using the gross notional amount of credit default swaps outstanding for which the company is the 

reference entity.

c

 

13For a U.S. nonbank financial company, the Council will apply the thresholds based on 

global assets, liabilities, and operations of the company and its subsidiaries. For a foreign 

nonbank financial company, the Council will apply the thresholds based solely on the U.S. 

assets, liabilities, and operations of the foreign nonbank financial company and its 

subsidiaries.

Using a ratio of total consolidated assets to total equity.
 

Page 9 GAO-15-51 FSOC Determinations

d

Using a ratio of total debt outstanding with a maturity of less than 12 months to total consolidated 

assets.

Stage 2. FSOC evaluates a company’s risk profile and characteristics 

using a range of quantitative and qualitative industry- and companyspecific factors (see fig. 4). These include a six-category analytical 

framework (described later in this Background section) and a review of 

qualitative factors such as whether the resolution of a nonbank financial 

company could pose a threat to financial stability. As part of the review in 

Stage 2, FSOC begins consulting with relevant primary financial 

regulatory agencies or home country supervisors, as it considers 

appropriate.14 As in Stage 1, the analysis primarily will use data collected 

from public and regulatory sources.15

 

14FSOC must consult with the primary financial regulatory agency of any nonbank 

financial company or subsidiary of a nonbank financial company prior to making a final 

determination. 

FSOC’s guidance states that FSOC 

can advance companies to Stage 3 that it decides warrant additional 

review to determine if the company could pose a threat to U.S. financial 

stability.

15According to its final rule and guidance, FSOC intends to rely on information from OFR, 

FSOC member agencies, and relevant primary financial regulatory agencies whenever 

possible before requiring a company to submit information. FSOC’s guidance also states

that it may consider information voluntarily submitted by the company.
 

Page 10 GAO-15-51 FSOC Determinations

Figure 4: Stage 2 of the Financial Stability Oversight Council’s (FSOC) Determination Process

a

Includes information from the primary financial regulatory agencies and home country supervisors, 

as appropriate.

b

We use the term activities to represent what the Dodd-Frank Act defines as “the nature, scope, size, 

scale, concentration, interconnectedness, and mix of the activities” of the nonbank financial company.

Stage 3. At the start of Stage 3, FSOC provides the company a written 

notice of consideration to inform the company that it is being considered 

for a proposed determination and submits one or more written requests 

for certain information to the company (see fig. 5). A company receiving 
 

Page 11 GAO-15-51 FSOC Determinations

such notice may submit written information to contest the Council’s 

consideration of the company for a proposed determination. The Stage 3 

analysis considers whether the company meets either one or both of the 

two statutory determination standards by assessing the channels 

(transmission channels) that FSOC identifies as most likely to facilitate 

the transmission of the negative effects of a company’s material financial 

distress or activities to other firms and markets.16 FSOC’s evaluation 

considers quantitative and qualitative information collected directly from 

the company with information collected during prior stages.17

 

16FSOC can designate a nonbank financial company if FSOC determines that the 

company’s (1) material financial distress or (2) the nature, scope, size, scale, 

concentration, interconnectedness, or mix of the company’s activities could pose a threat 

to the financial stability of the United States.

17In evaluating qualitative factors in Stage 3, FSOC has said that it also will evaluate a 

company’s resolvability, including the company’s operations and complexity, which may 

mitigate or aggravate the potential of the company to pose a threat to U.S. financial 

stability.
 

Page 12 GAO-15-51 FSOC Determinations

Figure 5: Stage 3 of the Financial Stability Oversight Council’s (FSOC) Determination Process
 

Page 13 GAO-15-51 FSOC Determinations

Proposed determination. At the conclusion of the Stage 3 analysis, 

FSOC notifies the company in writing that the evidentiary record is 

complete, and the Council has 180 days to vote on whether to make a 

proposed determination regarding the company.18

Right to a hearing and final determination. As shown in figure 6, within 

30 days of receipt of the notice of proposed determination, a company 

may request in writing a nonpublic hearing before the Council to contest a 

proposed determination and a company has a right to a hearing that is 

timely requested.

If the Council votes to 

make a proposed determination that the company’s material financial 

distress or activities could pose a threat to U.S. financial stability and that 

the company will be subject to Federal Reserve supervision and 

prudential standards, FSOC provides the company a written notice of the 

proposed determination. This notice includes an explanation of the basis 

for the Council’s decision. Any proposed determination may be made only 

with the affirmative vote of at least two-thirds of the Council’s voting 

members then serving, including the vote of the Secretary of the 

Treasury.

19

 

18If the Council fails to make a proposed determination within that time, the Council cannot 

thereafter make a proposed determination regarding the company without first sending it 

another written notice of consideration.

After the hearing—or after a brief notice period if a 

company does not request a hearing or notifies FSOC that it does not 

intend to request a hearing—the Council may vote on a final 

determination. Any final determination may be made only with the 

affirmative vote of at least two-thirds of the Council’s voting members

then serving, including the vote of the Secretary of the Treasury. FSOC 

provides designated companies with a written notice of a final 

determination (nonpublic basis document), including an explanation of the 

basis for its decision, when practical at least 1 business day before 

making a public announcement. FSOC also publicly releases a 

memorandum (public basis document) that includes a summary 

discussion of the conclusions supporting its determination. A designated 

19The request for a hearing can be made in accordance with Dodd-Frank Act § 113(e) 

(Pub. L. No. 111-203, § 113(e), 124 Stat 1376, 1401 (2010) (codified at 12 U.S.C. § 

5323(e))) and 12 C.F.R. § 1310.21(c). 
 

Page 14 GAO-15-51 FSOC Determinations

company may bring an action in U.S. district court for an order requiring 

that the determination be rescinded.20

 

20The legal action may be instituted in accordance with section 113(h) of the Dodd-Frank 

Act. Pub. L. No. 111-203, § 113(h), 124 Stat 1376, 1402 (2010) (codified at 12 U.S.C. § 

5323(h)). 
 

Page 15 GAO-15-51 FSOC Determinations

Figure 6: Hearing Request and Final Determination in the Financial Stability Oversight Council’s (FSOC) Determination 

Process
 

Page 16 GAO-15-51 FSOC Determinations

In addition to establishing a process, FSOC’s final rule and guidance also 

set out an analytical framework for making determinations. The 

framework incorporates the statutory considerations into six general 

categories:

1. Size. The amount of financial services or intermediation that a 

nonbank financial company provides, which may affect the extent to 

which a company’s financial distress is transmitted to other firms and 

the financial system.

2. Interconnectedness. The direct or indirect linkages between financial 

companies that may be conduits for the transmission of the effects 

resulting from the company’s material financial distress or activities.

3. Substitutability. The extent to which other firms could provide similar 

financial services in a timely manner at a similar price and quantity if a 

nonbank financial company withdrew from a particular market, 

including situations in which the company was the primary or 

dominant provider of services in a market that FSOC determines to be 

essential to U.S. financial stability.

4. Leverage. The company’s exposure or risk in relation to its equity 

capital, which may amplify a company’s risk of financial distress by 

raising (a) the likelihood that a company will suffer losses exceeding 

its capital, and (b) a company’s dependence on its creditors’ 

willingness and ability to fund its balance sheet.

5. Liquidity risk and maturity mismatch. Respectively, the risk that a 

company may not have sufficient liquidity (funding), such as cash flow 

or access to funding markets, to satisfy its short-term needs; and the 

difference between the maturities of a company’s assets and 

liabilities, which affects a company’s ability to survive a period of 

stress that may limit its access to funding.

6. Existing regulatory scrutiny. The extent to which nonbank financial 

companies are already subject to regulation; including the consistency 

of regulation across companies within and across sectors, and 

providing similar services; and the statutory authority of regulators.

According to FSOC’s rule and guidance, these six categories guide 

FSOC’s evaluation of whether a nonbank financial company could pose a 

threat to U.S. financial stability. The first three categories assess the 

potential effects of a company’s financial distress on the broader 

economy; the last three categories assess a company’s vulnerability to 

financial distress. FSOC’s guidance also identified three channels by 

which to assess how the material financial distress or activities—the 

FSOC Analytical 

Framework
 

Page 17 GAO-15-51 FSOC Determinations

statutory determination standards—of a nonbank financial company could 

be transmitted to other firms or markets and impair market functions.

• Exposure. A nonbank financial company’s creditors, counterparties, 

investors, or other market participants have exposure to the company 

that is significant enough to materially impair those creditors, 

counterparties, investors, or other market participants and thereby 

pose a threat to U.S. financial stability.

• Asset liquidation. A nonbank financial company holds assets that, if 

liquidated quickly, would cause a fall in asset prices and thereby 

significantly disrupt trading or funding in key markets or cause 

significant losses or funding problems for other firms with similar 

holdings.

• Critical function or services. A nonbank financial company is no 

longer able or willing to provide a critical function or service upon 

which market participants have relied and for which there are no 

ready substitutes.

In its final rule and guidance, FSOC explained that it will consider a wide 

range of quantitative and qualitative information, including industry- and 

company-specific factors. The final rule and guidance also provide 

examples of metrics FSOC may use to evaluate companies under the six 

categories, and analysis it may use under the three transmission 

channels. For example, for the interconnectedness category, FSOC’s 

assessment could include the company’s total debt outstanding (which 

captures a company’s funding sources), and counterparties’ exposures to 

the company and the characteristics of those exposures. For the critical 

function or service transmission channel, examples of possible analysis 

include the competitive landscape for the markets in which the company 

operates and for the services it provides; the company’s market share; 

the company’s provision of credit to low-income, minority, or underserved 

communities; and the ability of other firms to replace those services.

International institutions have developed several methodologies intended 

to identify global systemically important financial institutions, including 

nonbank financial companies. Since 2010, the Financial Stability Board 

(FSB) has worked with international standard-setting bodies on the 

International 

Methodologies
 

Page 18 GAO-15-51 FSOC Determinations

development of these methodologies.21 The Group of Twenty (G20)—a 

forum for international cooperation on important global economic and 

financial topics—mandated the establishment of the FSB in 2009 as the 

successor to the Financial Stability Forum to coordinate at the 

international level the work of national financial authorities and 

international standard-setting bodies to develop and promote the 

implementation of effective regulatory, supervisory, and other financialsector policies.22

FSB first assessed global systemically important banks and then 

considered different assessment methodologies for identification of other 

global systemically important financial institutions, thereby expanding 

possible identification incrementally to a wider group of potential global 

systemically important financial institutions. Subsequently, the Basel 

Committee, IAIS, and FSB, in consultation with IOSCO, developed and 

published five sector-specific methodological frameworks for identifying 

global systemically important financial institutions:

FSB member institutions include finance ministries, 

financial regulatory authorities, and central banks of the G20 members 

and several other countries. FSB members also include international 

bodies—such as the International Monetary Fund, the Organisation for 

Economic Co-operation and Development, and the World Bank—and 

international standard-setting bodies, such as the Basel Committee on 

Banking Supervision (Basel Committee), International Organization of 

Securities Commissions (IOSCO), and International Association of 

Insurance Supervisors (IAIS).

• the Basel Committee methodology to identify global systemically 

important banks;23

 

21See Financial Stability Board, Reducing the Moral Hazard Posed by Systemically 

Important Financial Institutions: FSB Recommendations and Time Lines (Oct. 20, 2010). 

Also see GAO, International Financial Reforms: U.S. and Other Jurisdictions’ Efforts to 

Develop and Implement Reforms, GAO-14-261 (Washington, D.C.: Apr. 3, 2014).

22The G20 was established in 1999 as a forum for finance ministers and central bank 

governors and was elevated to the political leader level in 2008 when its member 

countries’ heads of state or government first met to respond to the global economic and 

financial crisis. The G20 members include 19 countries and the European Union. 

23Bank for International Settlements, Basel Committee on Banking Supervision, Global 

Systemically Important Banks: Updated Assessment Methodology and the Higher Loss 

Absorbency Requirement (Basel, Switzerland: July 2013).
 

Page 19 GAO-15-51 FSOC Determinations

• the IAIS initial methodology to identify global systemically important 

insurers;24

• the FSB’s (in consultation with IOSCO) three nonbank, noninsurer 

methodologies to identify global systemically important finance 

companies, market intermediaries, and investment funds (which are 

not yet final).

and

25

The Basel Committee is the primary international standard-setter for the 

prudential regulation of banks and provides a forum for cooperation on 

banking supervisory matters. Established in 1975, it sets supervisory 

standards and guidelines to promote global financial stability. The 

standards are not legally enforceable, but are developed and issued by 

Basel Committee members with the expectation that individual national 

authorities will implement them. Members include central banks or bank 

supervisors for 27 jurisdictions, including the United States. 

IAIS is the international standard-setting body responsible for developing 

and assisting in the implementation of principles, standards, and other 

supporting material for the supervision of the insurance sector. 

Established in 1994, IAIS’s objectives are to promote effective and 

globally consistent supervision of the insurance industry; develop and 

maintain fair, safe, and stable insurance markets; and contribute to global 

financial stability. Its members include insurance supervisors and 

regulators from more than 200 jurisdictions in approximately 140 

countries, including the United States.

IOSCO sets international standards for the securities sector to protect 

investors, ensure efficient markets, and address systemic risks. Its 

members include more than 120 securities regulators, including the U.S. 

Securities and Exchange Commission (SEC). It also has affiliated 

members, including 80 other securities markets participants (such as 

stock exchanges). Established in 1983, IOSCO develops, implements, 

and promotes adherence to internationally recognized standards for 

 

24International Association of Insurance Supervisors, Global Systemically Important 

Insurers: Initial Assessment Methodology (Basel, Switzerland: July 18, 2013).

25Financial Stability Board and International Organization of Securities Commissions, 

Assessment Methodologies for Identifying Non-Bank Non-Insurer Global Systemically 

Important Financial Institutions: Proposed High-Level Framework and Specific 

Methodologies (Basel, Switzerland: Jan. 8, 2014). In addition to the three sector-specific 

methodologies, the nonbank, noninsurer methodologies include a guiding methodology for 

all other types of nonbank, noninsurer financial entities.
 

Page 20 GAO-15-51 FSOC Determinations

securities regulation. It works with the G20 and FSB to develop standards 

and guidance to implement the global regulatory reforms that apply to 

securities markets and institutions.

FSOC conducts its nonbank determination process largely through its 

committee structure, which generally comprises staff from member 

agencies. All FSOC member agencies have contributed staff to 

evaluations, but the extent of participation and leadership varied by 

member agency—with the Federal Reserve often at the forefront. FSOC 

uses a practice that relies on volunteers to lead and conduct company 

evaluations. However, FSOC does not track certain information critical for 

managing results—specifically, the dates of key process steps or the 

number of staff from each member agency working on determination 

evaluations. Companies that FSOC evaluated generally were satisfied 

with FSOC’s communication throughout the process, but were unclear 

about how and when they could access deputies and principals.

FSOC conducts its nonbank determination process largely through its 

committee structure (see fig. 7). FSOC’s committees generally comprise 

staff from each of its member agencies. FSOC’s standing functional 

committees help the Council carry out its responsibilities. The 

Designations of Nonbank Financial Companies Committee (hereafter, 

referred to as the Nonbank Designations Committee)—one of the 

functional committees and the focus of our review—supports FSOC in 

evaluating nonbank financial companies for enhanced prudential 

standards and supervision by the Federal Reserve. The Deputies 

Committee, which meets about every 2 weeks and consists of senior 

officials designated by principals, is responsible for overseeing the work 

of the committees. The deputies may resolve questions or concerns that 

arise in the other committees and review information that will be provided 

to principals. For example, according to Secretariat staff, in deciding 

which companies to prioritize for review in Stage 2, if the Nonbank 

Designations Committee is unable to reach consensus, the decision is 

elevated to the Deputies Committee, where the deputies make a decision 

after discussion and consideration of the Nonbank Designations 

Committee’s views and the principals’ priorities. Additionally, the FSOC 

Secretariat—a dedicated policy office (24 staff, led by a Deputy Assistant

Secretary) in Treasury’s Office of Domestic Finance—coordinates the 

work of the committees and assists the chairperson of the Council (the 

FSOC Manages the 

Determination 

Process through Its 

Committee Structure 

but Limited Recording 

or Tracking of Data 

May Hinder Its Ability 

to Monitor 

Performance

FSOC Manages the 

Determination Process 

through Its Committee 

Structure
 

Page 21 GAO-15-51 FSOC Determinations

Secretary of the Treasury) in carrying out his responsibilities. For a 

detailed description of the committees, see appendix II.

Figure 7: Committee Structure of the Financial Stability Oversight Council (FSOC)

The Nonbank Designations Committee conducts some of its work using 

working groups and analytical teams from member agencies. According 

to Secretariat officials, working groups have served as forums for 

discussing industry-specific topics and hosted a range of outside experts, 

such as state insurance regulators. Currently, the committee has one 
 

Page 22 GAO-15-51 FSOC Determinations

active working group—the Insurance Working Group.26 FSOC Secretariat 

officials said that analytical teams primarily focus on conducting company 

evaluations. For instance, analytical teams conducted evaluations of the 

three companies—AIG, GE Capital, and Prudential—that FSOC had 

designated as of September 2014. The Nonbank Designations 

Committee also participated in FSOC’s evaluation of the asset 

management industry. The evaluation included reviewing risks that may 

be posed by certain large asset management companies, and identifying 

industry-wide data gaps or activities that may merit further consideration. 

According to FSOC Secretariat officials, the Nonbank Designations 

Committee, including its working groups and analytical teams, has no 

authority to make decisions on behalf of the Council. Rather, it presents 

the results of its work in draft memorandums, and periodic briefings and 

updates to the Deputies Committee, which then reviews and provides 

feedback on this work before providing it to the Council for any action.

All member agencies participated on the Nonbank Designations 

Committee to some extent, although the majority of leaders and 

participants doing analytical work came from a few member agencies 

(see table 1). According to Secretariat and Federal Reserve officials, 

analytical teams typically consisted of about 6-10 active staff members 

but might include additional member agency staff with relevant subjectmatter expertise, as necessary.

With three exceptions—the Commodity Futures Trading Commission 

(CFTC), state banking supervisor, and state securities commissioner—

each member agency contributed at least one staff member to analytical 

teams or working groups during this period.27

 

26The Insurance Working Group is led by the independent member with insurance 

expertise. According to Secretariat staff, in the early stages of its existence, FSOC staff 

formed multiple working groups that were part of FSOC’s effort to determine how it would 

implement its statutory authority. These working groups existed from around 2010 to 2012 

and were most active before FSOC issued its final rule establishing the designation 

process. 

However, the amount of 

involvement varied widely. For agencies that contributed staff to the 

committee’s analytical work, the estimated number of staff participants 

27We collected information from each member agency on its estimates of staff 

contributions to the committee’s evaluations, including the amount and type of staff 

involvement, from 2012—the calendar year FSOC issued its final rule and guidance on 

nonbank designations—through the middle of 2014.

Member Agencies 

Contributed Varying 

Levels of Staff to FSOC’s 

Evaluation Teams

Agency Involvement in 

Analytical Teams or Working 

Groups Varied
 

Page 23 GAO-15-51 FSOC Determinations

varied from 1 in 1 year for the Consumer Financial Protection Bureau to 

20 or more staff in 3 consecutive years for the Federal Reserve. Six 

member agencies contributed at least 5 staff in each of the last 2 years—

including 12 from the Federal Deposit Insurance Corporation (FDIC) and 

9 from Treasury.

Table 1: Estimated Number of Staff Who Performed Company- and IndustrySpecific Analytical Work for the Nonbank Designations Committee, by Financial 

Stability Oversight Council (FSOC) Member Agency, 2012 through July 2014

FSOC Member 2012 2013 2014

Board of Governors of the Federal Reserve System 20 25 25

Federal Deposit Insurance Corporation 5 12 12 a

Securities and Exchange Commission

a

0 2 12

Department of the Treasury 4 9 9

State insurance commissioner 5 7 7 

Office of Financial Research 0 1 7

Federal Housing Finance Agency

b

9 5 a 5 

Office of the Comptroller of the Currency 3 5 5 

Independent member with insurance expertise 3 3 4 

Federal Insurance Office 2 3 3 

National Credit Union Administration 2 2 0 

Consumer Financial Protection Bureau 1 0 0 

Commodity Futures Trading Commission 0 0 0 

State banking supervisor 0 0 0 

State securities commissioner 0 0 0 

Source: GAO summary of information from FSOC member agencies. l GAO-15-51

Notes: Staff estimates were provided by officials from each member agency and represent individuals 

involved in analytical work and not those who may have participated in other capacities. These 

estimates do not reflect full-time equivalents, and should be considered part-time contributors unless 

otherwise noted. According to member agency officials, part-time contributions varied from 5 percent 

to almost 100 percent of a staff person’s time. The numbers for 2014 represent data collected through 

July 2014.

a

This figure includes one full-time detailee.

b

The Office of Financial Research estimated that the number of staff ranged from 7 to 10 in calendar 

year 2014.

The Federal Reserve and Treasury most often led the teams conducting 

the comprehensive Stage 3 evaluations, which typically had from two to 

four co-leads. Lead or co-lead analysts coordinate interagency efforts 

during the Stage 2 and Stage 3 evaluations and coordinate the drafting of 

the evaluation memorandums. According to information from FSOC 

member agencies, about half of the 15 agencies led or co-led a Stage 2 
 

Page 24 GAO-15-51 FSOC Determinations

or Stage 3 evaluation team (see table 2).28 Additionally, staff from five 

agencies co-led Stage 3 evaluations—the most in-depth review of the 

determination process.29

Table 2: Financial Stability Oversight Council (FSOC) Member Agencies Leading Company Evaluations for the Nonbank 

Designations Committee, 2011 through July 2014

Of the five, the Federal Reserve and Treasury 

co-led the most Stage 3 evaluations. Although they have not co-led any 

Stage 3 evaluations, staff from other agencies, including the Office of the 

Comptroller of the Currency (OCC) and FDIC, said they have been active 

participants in some or all of the Stage 3 evaluation teams. For example, 

FDIC officials said that FDIC was involved in all Stage 3 evaluations and 

contributed 15 staff over the course of the four evaluations. Although they 

have not co-led a Stage 3 evaluation, SEC has co-led four Stage 2 

evaluations, and OCC co-led two Stage 2 evaluations.

FSOC member Stage 2 Stage 3 Stage 3 company

Board of Governors of the Federal Reserve 

System

6 3 AIG, GE Capital, company currently subject to proposed

determination

Department of the Treasury 0 3 AIG, GE Capital, company currently subject to proposed

determination

Independent member with insurance expertise 2 2 AIG, company currently subject to proposed

determination

Federal Insurance Officea 1 2 Prudential, company currently subject to proposed

determination

Federal Housing Finance Agency 1 1 Prudential

Securities and Exchange Commission 4 0 N/A 

National Credit Union Administration 2 0 N/A

Office of the Comptroller of the Currency 2 0 N/A 

Federal Deposit Insurance Corporation 1 0 N/A 

Commodity Futures Trading Commission 0 0 N/A 

Consumer Financial Protection Bureau 0 0 N/A 

Office of Financial Research 0 a 0 N/A 

State banking supervisor 0 a 0 N/A 

State insurance commissioner 0 a 0 N/A 

 

28We did not include information on member agencies leading Stage 1 because OFR has 

performed the analysis (of uniform quantitative metrics and thresholds) on a regular basis.

29Each Stage 3 evaluation has included staff of multiple FSOC member agencies serving 

as co-leads.
 

Page 25 GAO-15-51 FSOC Determinations

FSOC member Stage 2 Stage 3 Stage 3 company

State securities commissioner 0 a 0 N/A 

Source: GAO summary of information from FSOC member agencies. l GAO-15-51

Notes: The numbers for 2014 represent data collected through July 2014. N/A indicates that a 

member agency has not led a company evaluation.

a

Nonvoting member of FSOC.

The amount of time each staff participant on the Nonbank Designations 

Committee contributed varied by individual and the nature of the work. 

Most staff participated on a part-time basis—they continued to fulfill work 

responsibilities at their home agencies. However, agency officials told us 

that the Federal Housing Finance Agency and FDIC each provided one 

full-time detailee to conduct work for FSOC’s Nonbank Designations 

Committee. Some staff participated in general committee work—for 

example, conference calls and monitoring e-mails—for a minimal amount 

of their time.30

Member agency staff who contributed to company evaluations also held 

various positions and contributed a range of expertise. Officials from 

member agencies told us that different aspects of the evaluation process 

required different types of staff expertise. For example, FSOC might use 

financial analysts to examine companies’ financial statements and 

economists to review broader systemic effects related to a company’s 

risks. The officials explained that the staff of their agencies who 

conducted analytical work for the committee generally included financial 

analysts, economists, policy analysts, specialists, and attorneys. For 

example, one agency indicated that its staff contributors included one 

senior advisor, two specialists, and two economists. According to officials 

from some member agencies, in the later stages of the determination 

process, the Deputies Committee, other senior staff, and some smaller 

member agencies became more involved.

According to member agencies’ officials, other staff 

contributed from 5 percent to almost 100 percent of their time to the 

evaluative work of analytical teams, depending on the circumstances of 

the evaluation and the applicable time period.

Although some member agencies may not have participated in working 

groups or on analytical teams, they participated in other ways. For 

 

30Table 1 reflects staff contributions to only the analytical work conducted by the Nonbank 

Designations Committee and not participation at a more general level.
 

Page 26 GAO-15-51 FSOC Determinations

example, all member agencies participated in the overall evaluation of 

nonbank financial companies through their deputies and principals and 

some member agencies were involved on other FSOC committees. CFTC 

officials explained that while they were not heavily involved in the 

Nonbank Designations Committee, CFTC staff members helped to lead 

the Designations of Financial Market Utilities and Payment, Clearing, and 

Settlement Activities Committee.

Finally, FSOC Secretariat officials stated that all member agencies were 

invited to participate on the Nonbank Designations Committee and 

member agencies’ officials generally felt that they had sufficient 

opportunities to participate, including conducting and leading analytical 

work. One agency official stated that some agencies played a larger role 

in the process because they are the primary regulatory agencies and may 

have more resources to contribute. Officials from two member agencies 

stated that despite having limited staff resources their offices contributed 

all, or nearly all, of their staff to participate in the Nonbank Designations 

Committee. Some agencies’ officials said that they chose to limit the 

extent of their participation because of resource constraints or lack of a 

direct interest or expertise in the companies or industries being evaluated. 

However, officials from each member agency also said that they 

remained involved in monitoring the committee’s work and engaging in 

discussions. 

FSOC uses a volunteer staffing practice for selecting and assigning staff 

to conduct and lead company evaluations. Secretariat and member 

agency officials explained that FSOC uses a practice that relies on 

member agencies volunteering staff for the Nonbank Designations 

Committee and its analytical teams as agencies deemed appropriate. 

According to Secretariat officials, FSOC relies on volunteers because the 

Council does not have staff resources of its own to conduct evaluations. 

Secretariat officials and member agencies said that the Secretariat 

coordinated the volunteer process and worked with team leads, 

committees (Nonbank Designations and Deputies Committees), and 

principals to help ensure the involvement of sufficient agencies and staff 

with relevant expertise.31

 

31According to Secretariat staff and a member agency official, analysts who worked on the 

Stage 2 analytical team for a company generally also worked on the Stage 3 analytical 

team for that company.

FSOC Selects and Assigns 

Staff from among Member 

Agency Volunteers
 

Page 27 GAO-15-51 FSOC Determinations

FSOC also uses a practice that relies on volunteers to lead its analytical 

teams. However, all agencies volunteering staff to lead evaluations may 

not be assigned as team leaders. According to officials, the Secretariat 

asks for volunteers to lead specific company evaluations and coordinates 

the selection process. Secretariat officials said that if the number of 

volunteers exceeded the need for team leads, the Secretariat would 

negotiate among various parties (including deputies) to select the team 

leads. Secretariat staff also said that analytical teams could have from 

two to four co-leads, thus allowing more volunteers to lead the team. 

Member agencies’ officials generally felt that they had sufficient 

opportunities to lead analytical work. However, one agency official said 

that team lead selections were contentious in some instances. For 

example, staff from this agency and another member agency stated that 

although they each attempted to have an experienced staff member colead an evaluation, FSOC denied the request without explanation. 

Secretariat staff and member officials said that, in general, FSOC selects 

team leaders and participants based on their expertise.32 Furthermore, 

Secretariat staff stated that in reviewing decision memorandums prepared 

by analytical teams, the Nonbank Designations Committee, deputies, and 

principals have multiple opportunities to provide input and identify any 

topical areas for which input by individuals with relevant expertise would 

be helpful or that require further analysis. Secretariat officials said that 

FSOC has not experienced any shortcomings or challenges related to 

staff resources or the expertise of staff. FSOC member agency officials 

generally indicated that their agency’s expertise was well utilized. But, two 

of the four companies we interviewed that FSOC evaluated in Stage 3 

indicated that some of the analysts conducting the evaluation had limited 

expertise in their company’s industry.

The determination process to evaluate companies has been in place for 

more than 2 years, but FSOC has not systematically recorded or 

monitored data related to the occurrence of significant events or 

comprehensive information on staff working on evaluations. Such actions 

constitute important control activities that are critical for managing results. 

As we previously reported, agencies are better equipped to address 

management and performance challenges when managers effectively 

 

32We did not examine the extent to which staff of analytical teams had requisite expertise 

or what was implied by “expertise” in each context. 

FSOC Has Not Centrally 

Recorded or Tracked 

Information Critical for 

Managing Results
 

Page 28 GAO-15-51 FSOC Determinations

use performance information—such as the duration of evaluations, and 

staff utilization—to track and monitor progress for decision making.33

Federal internal control standards identify control activities as an integral 

part of an entity’s planning, implementing, reviewing, and accountability 

for achieving effective results.34

In the initial Stage 1 analysis conducted in June 2012, FSOC—using 

information that OFR gathered from public and regulatory sources—

identified fewer than 50 nonbank financial companies that qualified for 

Stage 2.

Such activities include the accurate and 

timely recording of transactions and events. Federal internal control 

standards also highlight the need for analytical information to help 

managers identify specific actions that need to be taken. Furthermore, 

internal control monitoring should include assessments of the quality of 

performance over time.

35 Since that time, FSOC began Stage 2 evaluations of 14 of 

these companies and completed the evaluation process for 8, either by 

making a final determination or deciding not to further evaluate the 

company.36 FSOC determined that 3 companies should be supervised by 

the Federal Reserve and that the other 5 companies did not warrant 

further evaluation at that time and thus did not advance to Stage 3 for 

consideration for a proposed or final determination.37

 

33GAO, Managing For Results: Agencies’ Trends in the Use of Performance Information to 

Make Decisions, 

As of September 

GAO-14-747 (Washington, D.C.: Sept. 26, 2014); and Managing For 

Results: Implementation Approaches Used to Enhance Collaboration in Interagency 

Groups, GAO-14-220 (Washington, D.C.: Feb. 14, 2014).

34See GAO, Internal Control: Standards for Internal Control in the Federal Government, 

GAO/AIMD-00-21.3.1 (Washington, D.C.: November 1999).

35According to FSOC and OFR officials, OFR has been conducting the Stage 1 analysis 

on behalf of FSOC on a quarterly basis. The number of companies meeting thresholds for 

Stage 2 generally remained constant and was fewer than 50 through September 2014. 

Secretariat officials explained that although FSOC has staff to conduct more Stage 2 

evaluations, each requires a significant amount of time for deputies and principals, which 

can constrain the number of simultaneous evaluations. The officials said that, over time, 

FSOC expects to complete evaluations of the initial companies that advanced to Stage 2 

and focus on additions to the list.

36FSOC did not complete the evaluation for one company undergoing Stage 2 evaluation 

because, after FSOC began the evaluation, that company no longer met the required 

quantitative Stage 1 thresholds and did not qualify for Stage 2. Moreover, although the 

overall number was generally consistent, some companies were removed from and others 

added to the list of companies qualifying for Stage 2.

37FSOC may re-evaluate the companies in the future. 
 

Page 29 GAO-15-51 FSOC Determinations

2014, FSOC had five evaluations in process—it completed the Stage 3 

evaluation for 1 company, which received a proposed determination, and 

was evaluating 4 other companies in Stage 2. Table 3 summarizes the 

status of the company evaluations initiated by the Nonbank Designations 

Committee.

Table 3: Status of Company Evaluations Conducted by the Financial Stability 

Oversight Council’s (FSOC) Nonbank Designations Committee, as of September 

2014

Status Stage 2 Stage 3 Total

Final decision 5 3 8 

In process 4 1 5 a

Source: GAO summary of FSOC information. l GAO-15-51

a

This company received a proposed determination in September 2014.

However, FSOC has not centrally recorded the dates when significant 

events in the process occurred—such as the initiation of Stage 2 

analysis—or tracked the duration of key stages in each evaluation. 

Secretariat officials said that FSOC has not centrally recorded or tracked 

key processing dates because, if necessary, it can approximate or 

determine this information by analyzing documents such as 

memorandums completed at each stage of the determination process, 

notices, e-mails, or Council meeting minutes. For example, officials 

explained that quarterly Stage 1 memorandums contain conclusions and 

dates that provide information on the status of Stage 2 evaluations, and 

FSOC staff members use the Stage 1 memorandums to keep deputies 

and principals informed of the status of Stage 2 evaluations. Secretariat 

staff stated that the frequency and level of detail in the memorandums 

have been sufficient for FSOC’s purposes of monitoring progress on 

nonbank financial company determinations, and they have not found it 

necessary to track specific dates for process steps such as when work on 

a particular analysis began. However, FSOC ultimately was unable to 

provide us with this information for 2012 because it has not systematically 

recorded or monitored the dates of key processing steps. Officials from 

one member agency stated that the Nonbank Designations Committee 

and Deputies Committee monitor the progress of the analytical teams and 

provide direction on key issues through periodic updates. These officials 

and Secretariat officials indicated that FSOC has not established or 

tracked time frames for the analytical work conducted during Stages 2 

and 3 because the time required may vary considerably based on the 
 

Page 30 GAO-15-51 FSOC Determinations

complexity of the company being evaluated and the volume of information 

that the company may submit for consideration during Stage 3.

FSOC also has not centrally collected data on all member agency staff 

who conducted company evaluations. For example, FSOC did not know 

the number or types of staff that member agencies contributed to 

evaluations or all of the staff who participated in any one company’s 

evaluation. Secretariat staff stated that FSOC has not collected or tracked 

information on team membership because assigned team members often 

bring in additional experts or make substitutions and obtaining the 

information from all member agencies would be burdensome. 

Without data on when staff conduct, or which staff participate in, 

determination evaluations, FSOC’s ability to effectively monitor the 

progress and evaluate the efficiency of determination evaluations may be 

limited. Specifically, FSOC may not be able to identify resource needs, 

revise its process to maximize the effective use of resources, or plan for 

future determination evaluations. The lack of such information also may 

hinder FSOC’s ability to inform companies about how long the 

determination process took in the past. Furthermore, FSOC might not be 

able to determine whether the most relevant member agencies and their 

staff representatives conducted evaluations or help to ensure the broad 

participation of member agencies in company evaluations.

Companies that FSOC evaluated generally were satisfied with FSOC’s 

communication throughout the process, but were unclear about how and 

when they could access deputies and principals. As previously discussed, 

FSOC’s communication with companies under review includes several 

formal notifications:

• Notice of consideration. Following a vote to advance a company to 

Stage 3, FSOC informs a nonbank financial company that it is 

considering whether to make a proposed determination and that the 

company can submit written materials to contest FSOC’s 

consideration of the company for a proposed determination.

• Notice of completion of evidentiary record. FSOC informs the 

company that it has completed the evidentiary record for the 

company, after which it must make a proposed determination within 

180 days of the company’s receipt of this notice, unless FSOC issues 

a new notice of consideration.

• Notice of proposed determination. FSOC informs the company of a 

proposed determination, including the basis for such determination. 

FSOC Frequently 

Communicated with 

Companies Undergoing 

Evaluation, but Was 

Unclear about Companies’ 

Ability to Access Certain 

Officials
 

Page 31 GAO-15-51 FSOC Determinations

The company has 30 days after receipt of the notice to request a 

hearing to contest the proposed determination. The hearing can be 

limited to written submissions, or at FSOC’s discretion may include 

oral testimony and oral argument, and may occur before the Council 

or its representatives.

• Notice of final determination. After any hearing, FSOC informs the 

company that it has made a final determination and provides an 

explanation of the basis for its decision. When practical, FSOC 

provides this notice at least 1 business day before publicly 

announcing the determination.

In addition to these notices, FSOC submits one or more written data 

requests to the company through OFR at the start of Stage 3. According 

to officials of companies evaluated in Stage 3, OFR sends the initial 

request about 2 weeks after FSOC sends the notice of consideration and 

this initiates FSOC’s Stage 3 interactions with companies under 

evaluation.

According to their officials, three of the four companies that were 

evaluated in Stage 3 generally were satisfied with their interactions with 

FSOC. For example, officials from some of the companies noted that at 

the beginning of Stage 3, FSOC held an in-person meeting to discuss the 

process and regularly communicated with the companies throughout the 

evaluation. These officials also said that FSOC staff made themselves 

available to discuss data requests and respond to questions and 

concerns. FSOC Secretariat officials stated that their interactions with 

companies included extensive discussions, generally related to 

information being analyzed by the Council. For example, over a 12-month 

period staff from member agencies engaged with one company 20 times, 

including seven meetings with senior management and numerous 

telephone meetings, and considered more than 200 data submissions. 

For the three companies that received a final determination, we reviewed 

summary documentation of FSOC’s interactions with each and found that 

FSOC staff had at least 13 separate communications with each company, 

in addition to the formal notifications. The interactions were predominantly 

by telephone and generally involved discussions about specific 

information related to FSOC’s evaluation of the company. Officials from 

all four companies said that FSOC adjusted the deadline for responding 

to its data requests when the company asked for an extension. Company 

officials stated that they also were allowed to provide additional 

information beyond the specific data that FSOC requested. However, they 

said that they were unsure to what extent FSOC had considered the 

information or how FSOC incorporated it into the determination decision. 
 

Page 32 GAO-15-51 FSOC Determinations

FSOC member agency officials also indicated that significant 

communication occurred with companies under evaluation. For example, 

some of these officials said that evaluation teams made themselves 

available to companies undergoing evaluation whenever companies 

requested a discussion. Additionally, FSOC granted these companies the 

ability to submit statements and any other information about why they 

should not receive a determination.

However, officials from several of the companies with whom we spoke 

expressed some concerns about the level and extent of FSOC 

representation at meetings. Officials from three of the four Stage 3 

companies said that they communicated primarily with analytical staff 

rather than deputies or principals. Officials from two companies stated 

that while staff from multiple member agencies attended meetings, some 

agencies never had any staff present at any of the meetings. Officials 

from some companies also indicated varying access to deputies and 

principals. For example, two companies’ officials stated that only one 

principal attended any of their meetings, and he did so regularly. Officials 

from one of the companies stated that despite their requests, none of the 

other principals or any deputies came to the meetings. Officials from the 

other company said FSOC turned down their request to meet with 

principals and that FSOC indicated to them that some principals felt 

uncomfortable meeting with a company before a determination. However, 

the officials said that FSOC later offered the company a meeting with all 

of the deputies. According to officials from some FSOC member 

agencies, companies had ample opportunities to communicate with 

FSOC even before having the opportunity to request a formal hearing 

with principals. 

Secretariat officials said that in Stage 3 FSOC accepted all requests by 

companies under evaluation to meet with staff from member agencies 

and the Deputies Committee. In addition, the officials stated that one 

company requested a meeting with deputies in Stage 3 and that the 

deputies hosted a 2-hour meeting with the company.38

 

38According to officials, this company originally requested an opportunity to meet with the 

voting member principals, and FSOC later offered the company a meeting with the 

deputies.

Secretariat officials 

also said that they believe one or more deputies attended at least one 

meeting with each company. For meetings with principals, Secretariat 

officials explained that under the Dodd-Frank Act and FSOC’s final rule 
 

Page 33 GAO-15-51 FSOC Determinations

on nonbank determinations, companies can request a hearing with 

principals before a final determination.39

FSOC has not established documentation clarifying access to deputies 

and principals beyond the formal hearing process, including whether, 

when, and on what terms companies under evaluation may meet with 

deputies and principals. Although FSOC has adopted a final rule on its 

determination process, bylaws for the Council (principals) and Deputies 

Committee, and procedures for hearings in connection with proposed 

determinations, these documents do not describe to what extent, if at all, 

companies under consideration may be able to access deputies and 

principals before a proposed designation. Moreover, FSOC provides 

notices to companies, and on its website has frequently asked questions 

(FAQ) about nonbank designations—which includes some information 

about the opportunities companies have to interact with FSOC before a 

designation—but neither the notices nor the FAQ section describe 

companies’ ability to access deputies and principals before a proposed 

designation.

Two companies requested such 

a hearing, and Secretariat officials said FSOC granted both requests and 

the principals conducted the hearings in person. However, the DoddFrank Act and FSOC’s final rule do not contemplate such a formal 

hearing until after FSOC has completed its Stage 3 analysis and made a 

proposed determination. According to Secretariat officials, FSOC’s 

practice has been that principals not meet with companies under Stage 3 

evaluation because the evaluation was ongoing with no proposed 

designation made. They said that they recognize that individual principals 

retain ultimate discretion about whether to meet with companies during 

Stage 3.

According to federal internal control standards, formally documented 

policies and procedures that are clear and readily available are an 

essential part of an agency’s internal control system and help to ensure 

that activities are performed consistently across an agency. Furthermore, 

federal internal control standards state the importance of relevant, 

 

39On April 11, 2012, FSOC issued a final rule and interpretive guidance outlining how it 

would evaluate and designate nonbank financial companies for supervision by the Federal 

Reserve. See Authority to Require Supervision and Regulation of Certain Nonbank 

Financial Companies, 77 Fed. Reg. 21637.
 

Page 34 GAO-15-51 FSOC Determinations

reliable, and timely communications within an organization, as well as 

with external stakeholders.40

Secretariat officials stated that they have not established any formal 

documentation relating to companies’ interactions with principals and their 

deputies before a proposed designation, because so far they have 

received only one request to meet with deputies—which was granted—

and the Council has followed a practice of declining requests from 

companies undergoing Stage 3 evaluation to meet with principals. These 

officials also stated that the determination of whether FSOC principals 

collectively meet with a company is made on the basis of a particular 

request. Furthermore, Secretariat officials were not aware of other 

agencies— such as member agencies including the Federal Reserve, 

SEC, CFTC, the National Credit Union Administration, and FDIC—that 

have formal written procedures for when a company may meet with the 

principals of that agency. However, FSOC has established written 

procedures for certain instances when companies can meet with 

principals but it has not defined such procedures beyond the formal 

hearing process or for meeting with deputies. Without clear 

documentation of its practices, FSOC may not be able to ensure the 

consistency and transparency of interactions among principals, deputies, 

and companies undergoing evaluation. Furthermore, companies under 

evaluation by FSOC may not have had complete information about the 

extent to which they could meet with deputies and principals. For 

example, as discussed earlier one company requested and received a 

meeting with deputies in Stage 3 of the evaluation process, but other 

companies in a similar situation may not have been aware that such an 

opportunity existed.

 

40GAO/AIMD-00-21.3.1. 
 

Page 35 GAO-15-51 FSOC Determinations

FSOC has developed and followed a process for making determination 

decisions that includes systematic elements. However, FSOC’s public 

documentation has not always fully disclosed the specific bases for its 

determination decisions. FSOC’s nonpublic documentation could have 

benefitted from inclusion of additional detail about some aspects of its 

designation decisions. Also, as of September 2014, FSOC had not 

evaluated companies based on whether their activities alone could 

threaten financial stability, but only on whether their material financial 

distress could. Furthermore, data limitations prevented FSOC from 

including some types of nonbank financial companies in its scope of 

review.

FSOC has developed and followed a process for making determinations 

that is in part systematic and transparent. A systematic process can be 

defined as one that is methodical, based on criteria, and applied 

consistently. For example, the final rule and guidance established a 

determination process comprising three stages in which FSOC conducts 

increasingly detailed analysis of selected companies. For the first stage of 

the process, FSOC defined specific quantitative metrics to be used as 

criteria for identifying companies for further evaluation—which can 

provide transparency to the markets, the public, and companies that may 

be identified for review. FSOC also defined a framework for its analysis, 

including evaluation categories and transmission channels (that is, 

exposure, asset liquidation, and critical function or services) upon which it 

would base its evaluations. In addition, FSOC committed to providing 

notice to companies about their status in the process, such as 

advancement to Stage 3 and decisions about proposed and final 

determinations. FSOC sought information from and provided information 

to the public and market participants about these and other aspects of its 

determination process by soliciting public comments on its proposed rule 

and publishing its final rule and guidance.

In its completed reviews, FSOC followed its determination process and 

analytical framework. We reviewed FSOC documentation for eight 

nonbank financial companies, including nonpublic analysis 

memorandums (from Stage 2 and Stage 3 evaluations), notices that 

FSOC sent to these companies, and other communications between 

FSOC’s 

Determination 

Process Could Be 

Improved for Greater 

Transparency and 

Accountability

FSOC Has Followed Its 

Analytic Process, Which 

Provides a Degree of 

Consistency and 

Transparency
 

Page 36 GAO-15-51 FSOC Determinations

FSOC and the companies.41

In evaluating the categories and channels, FSOC analyzed a variety of 

metrics. For example, FSOC used both quantitative and qualitative 

metrics to evaluate a company’s total assets, including the types of 

assets, and ranked companies against their competitors according to 

asset size and other characteristics. In assessing interconnectedness, 

FSOC evaluated a company’s financial and business relationships with its 

counterparties, along with other factors. To analyze substitutability, 

FSOC’s analysis included using industry-specific metrics related to 

market implications of the company withdrawing due to material financial 

distress or failure. Table 4 provides examples of metrics and other factors 

FSOC considered in applying its analytical framework.

Based on our review, we found that FSOC 

implemented the three-stage process for making determinations as 

outlined in its final rule and guidance. In its evaluations, FSOC conducted 

quantitative and qualitative analyses that followed its six-category and 

transmission-channel framework. As described previously, FSOC 

established a framework for its determination evaluations composed of 

six analytical categories and three channels that it deemed most likely to 

transmit the effects of a company’s financial distress or activities to other 

financial firms and markets. FSOC’s Stage 2 analysis primarily involved 

the six analytical categories and its Stage 3 analysis focused on the three 

transmission channels.

Table 4: Examples of Metrics and Analysis Used in the Financial Stability Oversight Council’s (FSOC) Evaluations of Nonbank 

Financial Companies 

Categories of analysis Examples of information used

Six-category framework

Size • Total consolidated assets, including types of assets.

• Ranking, by asset size, compared with competitors.

• Company locations and structure, including international operations and the number of 

major business units.

• Sales volumes in the United States by operating segment or product line.

Interconnectedness • Sources of funding and reliance on such sources.

• Counterparties, including types of parties and amounts and types of exposures to those 

parties.

 

41We did not review FSOC documentation for the company that received a proposed 

determination in September 2014 because FSOC was evaluating the company and had 

not made a final designation. 
 

Page 37 GAO-15-51 FSOC Determinations

Categories of analysis Examples of information used

• Foreign operations and exposure to foreign markets.

• Financial and business relationships with parent company and affiliates.

Substitutability • Products and services and availability of competitors and substitutes that provide the 

same products and services.

• Market share of products and services and comparison with competitors’ market shares.

• Barriers for competitors to enter the markets of company’s products and services.

Leverage • Ratios of total assets and total debt to total equity.

• Leverage position and comparison with that of other large financial institutions (including 

banks and nonbank financial companies).

• Efforts to decrease current and future leverage.

Liquidity risk and maturity mismatch • Ratios of assets to long-term and short-term debt.

• Total debt outstanding and amount of debt due in future years.

• Available cash flow and funding sources, including existing lines of credit, and ability to 

meet debt commitments.

• Reliance on government financial support during recent financial crisis.

Existing regulatory scrutiny • Relevant federal, state, and local laws and regulations that apply to the company.

• Current financial supervisors and the nature and extent of oversight of the company and 

its subsidiaries.

• Extent of state and foreign regulation of certain subsidiaries, such as insurers.

• Additional regulatory authorities resulting from a designation by FSOC. 

Other factors from FSOC guidance

Resolvability • Legal, business, and operating structure, including its significance in terms of size and 

complexity.

• Ability to resolve company in a rapid and orderly fashion and potential obstacles to doing 

so.

• Whether company provides critical functions or services.

• Extent to which company’s domestic and foreign operations are connected and share 

critical services.

• Potential consequences of a subsidiary’s failure for other subsidiaries and parent 

company.

Transmission channels

Exposure • Amount of capital markets activities and debt and equity outstanding, including by 

instrument type and by counterparty.

• Exposure to company’s products and services, such as insurance coverage.

• Exposures of large financial companies (including global banks) to the company resulting 

from company-issued debt or reliance on company as a provider of credit.

• Potential negative effects of company’s failure on customers, competitors, other financial 

companies, and state-based guaranty and security funds. 

Asset liquidation • Reliance on particular types of funding and the stability of these funding sources.

• Amount and characteristics of assets, including the extent to which assets are liquid.

• Potential events or triggers that could force a liquidation of assets, the consequences of 

liquidation for the company, and potential effects on other companies (including large 

bank holding companies and insurance companies) with similar assets to those held by 

the company.
 

Page 38 GAO-15-51 FSOC Determinations

Categories of analysis Examples of information used

• Potential mitigating factors, such as the availability of options for the company to 

generate cash and funding in a timely manner.

Critical function or services • Core products and market shares, detailed by lines of business.

• Role in providing services—such as insurance coverage—for large financial companies 

(including global banks) and consequences if company were unable to provide those 

services.

• Extent to which company provides a critical function or service in particular markets—

such as providing credit to low-income, minority, or underserved communities or state 

and local governments—and potential effects of disruption in service to market customers 

and marketplace.

• Relevant attributes that distinguish operations from peers or make products difficult to 

replace.

• Potential mitigating factors, including availability of competitors and substitutes. 

Source: GAO analysis of FSOC documents. | GAO-15-51

Note: The table is for illustrative purposes only—the listed metrics and analysis represent only a 

sampling of those FSOC used in its evaluation process.

Furthermore, for each of the companies for which we reviewed

documentation and that advanced to Stage 3, FSOC complied with the 

notification requirements in its final rule and guidance. These included 

sending companies notice that FSOC was reviewing them in Stage 3, that 

it had completed its evidentiary record, and that it had made a proposed 

and final determination, as applicable. For the only company that 

requested a hearing to contest a proposed determination, FSOC granted 

the company’s request and held the hearing in compliance with the time 

frame specified in its final rule and guidance.

FSOC has a transparency policy that states that it is committed to 

operating in an open and transparent manner while recognizing the need 

to protect confidential and market-sensitive information. This 

transparency policy is reflected in the analytical framework in FSOC’s 

final rule and guidance, which describes how FSOC will conduct 

determination evaluations (including sample metrics). However, FSOC’s 

public documentation of its designation decisions has not always included 

all details of the specific bases for making those decisions. FSOC’s 

nonpublic documentation of Stage 3 evaluations contains extensive facts, 

FSOC Has Not Always 

Fully Disclosed to the

Public the Specific Bases 

for Its Determination 

Decisions
 

Page 39 GAO-15-51 FSOC Determinations

analysis, and evaluation but could have benefitted from inclusion of 

additional detail about some aspects of its designation decisions.42

FSOC’s final rule and guidance state that the Council recognizes that 

each company may pose unique risks to U.S. financial stability and that 

tailoring the determination evaluation to individual companies rather than 

using predefined analyses or criteria would enable the Council to reflect 

such risks. According to Secretariat officials, FSOC did not develop a 

process or additional guidance for identifying detailed and specific 

analytical methods or prescriptive criteria for applying the analytical 

framework in evaluating companies because the framework and guidance 

itself is sufficient and each nonbank financial company is complex and 

unique and therefore evaluations warrant a company-specific approach. 

Thus, officials said that FSOC staff, deputies, and principals used their 

judgment, expertise, and discretion—as authorized by and within the 

scope of the statutory considerations and the analytical framework in 

FSOC’s final rule—when applying qualitative and quantitative criteria for 

determining if companies met one of the statutory determination 

standards. While FSOC’s determination evaluations may benefit from 

flexibility in applying criteria to different companies, the judgment and 

discretion involved in the process underscore the importance of disclosing 

how the criteria were applied and the basis for a determination decision.

FSOC’s public documentation supporting its three final determinations

made through September 2014 included only a small portion of the 

information and analysis in its nonpublic documentation, including 

information from publicly available sources. According to the Office of 

Management and Budget’s directive on open government, transparency 

promotes accountability by providing the public with information about 

government activities.43

 

42While we reviewed FSOC’s nonpublic documentation, we did not evaluate the quality of 

FSOC’s analysis. Our review was limited to FSOC’s documentation of its analysis for the 

three nonbank financial companies receiving a final determination as of September 2014, 

and our findings pertain only to that documentation. Our findings do not reflect conclusions 

regarding legal compliance.

For example, for each of the three 

determinations, the public documentation ranged from 12 to 14 pages, 

compared with the nonpublic documentation that ranged from about 140 

43Office of Management and Budget, Open Government Directive, OMB Memorandum M10-06 (Washington, D.C.:2009). The directive also recognizes that the presumption of 

openness does not preclude the need to protect confidential information.
 

Page 40 GAO-15-51 FSOC Determinations

to 190 pages, including supporting information and analysis. The public 

basis documents generally included summaries of information about the 

transmission channels and analytical categories more fully discussed in 

the nonpublic documents.

Although the nonpublic memorandums for Stage 3 and the nonpublic 

basis documents include extensive information collected directly from 

companies that may be considered proprietary or market-sensitive, 

sizeable amounts of information were obtained from public sources, 

according to source notations included in the documents. For example, 

publicly sourced information that did not appear in the public versions of 

the basis documents included

• information from an international research organization’s public report 

on the insurance industry’s resolution process (used in discussion 

about the interconnectedness of banks, corporations, and insurers);

• information from fee-based data providers (used in evaluating a 

company’s size and market share);

• information from an industry association’s survey of commercial and 

multifamily mortgage data (used in analyzing whether a company 

provides credit to low-income communities);

• information from academic studies about the 2007-2009 financial 

crisis and its effect on commercial investment products (used in 

discussion about counterparties’ exposures to the company); and

• information from a company’s SEC filings, including audited financial 

statements and an overview of business and financial conditions 

(used in evaluating a company’s upcoming contract payment 

obligations).

An appropriate level of transparency recognizes the need to maintain 

confidential and sensitive information. At the same time, our prior work 

has recognized that transparency is a key feature of accountability even 

when there is a need to safeguard certain sensitive information to protect 

companies and markets.44

Secretariat staff said that FSOC endeavors to make as much information 

available to the public as possible, but noted that it abides by its 

statutorily mandated obligation to maintain the confidentiality of data, 

 

44See GAO, Troubled Asset Relief Program: Continued Stewardship Needed as Treasury 

Develops Strategies for Monitoring and Divesting Financial Interests in Chrysler and GM, 

GAO-10-151 (Washington, D.C.: Nov. 2, 2009).
 

Page 41 GAO-15-51 FSOC Determinations

information, and reports submitted by a company undergoing review or by 

a regulator.45

In the nonpublic documentation—Stage 3 memorandums and notices of 

proposed and final determinations—for FSOC’s three final 

determinations, FSOC generally identified the potential for the companies

to meet a determination standard based on the size or significance of 

certain of the company’s characteristics evaluated under the transmission 

channels in FSOC’s analytical framework. FSOC designated each of the 

three companies based on its determination that the company’s material 

financial distress could pose a financial stability threat primarily from the 

exposure and asset liquidation channels. The documentation did not 

include details about precisely how FSOC determined that the stated 

characteristics were significant or sufficiently large in the context of 

meeting one or both of the determination standards, and FSOC’s 

documentation could have benefitted from inclusion of such additional 

details. 

In addition, Treasury officials noted that releasing only 

public information could be misleading as it would not represent the 

totality of the information considered by FSOC. Instead, officials said that 

the Council has taken the approach of tracking the public disclosures to 

the executive summaries of the nonpublic memorandums, so the public 

documents could include the key issues that the Council considered. 

FSOC’s transparency policy and annual reports have emphasized a goal 

of maximizing transparency and accountability while also protecting 

market-sensitive and confidential information. However, without more fully 

disclosing the nonsensitive information and analysis supporting its 

determinations as included in its nonpublic basis documents, the public 

and the markets receive limited information on the bases for FSOC’s 

determinations—which in turn may undermine the public’s and the 

market’s confidence in the determination process.

For example, when evaluating one of these companies under the 

exposure channel, FSOC clearly set out the company’s corporate 

counterparties and customers, along with the dollar values of transactions 

with counterparties, in support of FSOC’s finding that the company had 

significant exposures to a large number of corporate and financial entities 

that could suffer meaningful losses should the company experience 

 

45For FSOC’s obligation to maintain confidentiality, see Dodd-Frank Act § 112(d)(5). Pub. 

L. No. 111-203, § 112(d)(5), 124 Stat 1376, 1397 (2010) (codified at 12 U.S.C. § 

5322(d)(5)), and 12 C.F.R. § 1310.20(e). 
 

Page 42 GAO-15-51 FSOC Determinations

material financial distress. In evaluating another company’s exposure risk, 

FSOC concluded that large corporate and financial entities had significant 

exposures to the company through specific company products and listed 

major liabilities and contracts and the total dollar values of those 

exposures. When assessing the company under the asset liquidation 

channel, FSOC found that the company’s material financial distress could 

result in a forced liquidation of assets that could cause significant 

disruptions to key markets and significant damage to the broader 

economy. However, as noted above, FSOC’s documentation could have 

benefitted from inclusion of additional detail about how it determined that 

the companies’ counterparty exposures and potential systemic effects

were significant in the context of meeting one or both of the statutory 

determination standards.

FSOC has evaluated companies (including those not advanced to Stage 

3 for further review) using only the determination standard based on 

material financial distress. None of the analyses considered whether the 

companies’ activities—the second statutory determination standard—

could pose systemic threats. According to Secretariat staff, Nonbank 

Designations Committee staff and deputies consider which determination 

standard is most relevant to each company and then use that standard in 

conducting determination evaluations. To reach a decision about which 

standard should apply to a company’s evaluation, Secretariat staff told us 

FSOC staff hold discussions on the topic. If the analytical team 

conducting an evaluation were to determine that the second standard 

would be more relevant, the team would raise the matter with the 

Nonbank Designations Committee, Deputies Committee, or principals for 

a decision and other FSOC staff would have an opportunity to provide 

input. However, officials from two member agencies told us that they did 

not recall having formal discussions to reach decisions on which 

determination standard should apply.

According to FSOC documentation of its eight Stage 2 and three Stage 3 

evaluations that we reviewed, in each case FSOC used only the material 

financial distress standard, including cases in which FSOC decided not to 

advance the company to Stage 3. For example, in the eight completed 

Stage 2 evaluations, the six-category analysis for each company was 

focused on the potential impact of the company’s financial distress on the 

economy and the company’s vulnerability to financial distress. Likewise, 

for the three completed Stage 3 evaluations we reviewed, FSOC’s 

memorandums state the proposed determinations were based on the 

FSOC Has Evaluated 

Companies Only under 

One of Two Statutory 

Determination Standards
 

Page 43 GAO-15-51 FSOC Determinations

potential for the companies’ material financial distress to pose threats to 

financial stability.

The Dodd-Frank Act tasks FSOC with identifying financial stability risks 

including those that could arise from nonbank financial companies’ 

material financial distress or activities. The act does not require FSOC to 

evaluate companies using both determination standards and allows 

FSOC to designate any nonbank financial company based on either 

standard. Secretariat staff said evaluations were in accordance with 

Dodd-Frank, which focuses on whether a company could pose a threat to 

financial stability. The staff further explained that FSOC has not 

conducted evaluations under both standards because FSOC staff, 

deputies, and principals consistently reached consensus that the material 

financial distress standard was more relevant to their evaluations.

However, in considering companies for designation using only one 

standard—and ultimately making determination decisions based only on 

that standard—FSOC may not be identifying companies that meet the 

other determination standard and therefore may warrant designation. The 

2007-2009 financial crisis illustrated the role that financial activities can 

play in financial instability, even absent the distress of the companies 

engaged in the activities. In the years preceding the crisis, a wide range 

of companies engaged in financial activities that many market observers 

believe contributed, at least in part, to the conditions leading to or 

exacerbating problems in the mortgage market and the broader financial 

system. For example, nonbank mortgage lenders weakened their 

underwriting standards and made mortgage loans to homebuyers who 

could not afford them or engaged in questionable lending practices before 

the crisis. In addition, investment banks and other finance companies 

engaged in financial innovation in the form of asset securitization, which 

reduced mortgage originators’ incentives to be prudent in underwriting 

loans and made it difficult to understand the size and distribution of loss 

exposures throughout the system. Although Secretariat staff told us that 

FSOC staff and deputies discuss and decide which determination 

standard is relevant for each company’s evaluation, that decision takes 

place before the Stage 2 or Stage 3 analysis of the company and 

therefore may not be informed by the company-specific analysis or 

detailed information the company provided. As a result, FSOC may not be 

able to ensure that it will achieve its intended results by identifying all 

companies that may pose financial stability threats and be subject to 

determination.
 

Page 44 GAO-15-51 FSOC Determinations

Data limitations have prevented FSOC from including some types of 

nonbank financial companies in its scope of review. For Stage 1, FSOC 

relies solely on information available through public and regulatory 

sources to calculate the Stage 1 quantitative thresholds for the purpose of 

identifying companies most likely to satisfy one of the determination 

standards. Our review of OFR’s Stage 1 analysis memorandums—which 

include a list of companies that exceed the Stage 1 thresholds and 

therefore advance to Stage 2—found that OFR had not included at least 

two large companies that are privately owned, do not disclose financial 

statements, and may fit the definition of a nonbank financial company. In 

some cases, because Stage 1 metrics are by regulation derived only from 

public and regulatory sources, OFR analysis included only certain 

(nonbank financial company) subsidiaries of larger parent companies that 

also may be nonbank financial companies due to data limitations. For 

example, OFR reviewed privately owned parent insurance companies 

using only data about the companies’ U.S. insurance subsidiaries 

because data on privately owned holding companies are not readily 

available.46

Under the direction of FSOC, OFR’s analysis followed a similar approach 

for analyses of U.S.-based subsidiaries of some private companies,

including some private foreign-owned companies. The reviews either 

reflected an aggregation of data from certain subsidiaries that were 

regulated nonbank financial companies or used data from a single 

(nonbank financial company) subsidiary of a parent company because 

that was the subsidiary for which information was available. For instance, 

one Stage 1 analysis included a subsidiary broker-dealer for which 

regulatory filing information is available through SEC, but not the parent 

company. The parent company was private and did not file 

comprehensive financial information.

Insurance subsidiaries submit regulatory filings to the National 

Association of Insurance Commissioners (NAIC), which aggregates the 

data by parent insurance company. The aggregated data do not include 

information from noninsurance subsidiaries or subsidiaries that do not 

report data to NAIC.

 

46FSOC’s documentation of its Stage 1 analysis recognizes that parent insurance 

companies generally include subsidiaries that do not provide statutory filings to the 

National Association of Insurance Commissioners, including noninsurance financial 

subsidiaries and foreign subsidiaries, and that information about these entities may not be 

included in the Stage 1 analysis. Therefore, the analysis may understate the extent of 

financial activities conducted by such companies. 

FSOC Faces Data 

Challenges in Including All 

Nonbank Financial 

Companies in Its Initial 

Scope of Review
 

Page 45 GAO-15-51 FSOC Determinations

FSOC acknowledged that relevant data likely were not available in the 

public and regulatory domain to assess all nonbank financial companies 

in its Stage 1 analysis. According to FSOC’s Stage 1 documentation, 

private companies and U.S. subsidiaries of foreign companies with no 

single intermediate U.S. holding company presented challenges, both in 

identifying the companies for inclusion in the list of nonbank financial 

companies for Stage 1 analysis and in gathering Stage 1 data. In 

response to these challenges, and in consultation with the Secretariat, 

OFR adopted the approach of aggregating data for subsidiaries of a 

nonbank financial company for which data were available. Secretariat 

officials said that OFR used available data on a company’s subsidiaries to 

approximate the Stage 1 thresholds for the parent company. Other than 

this approach, OFR officials confirmed that nonbank financial companies 

that are privately held and do not file public financial statements are not 

included in the Stage 1 analysis that OFR conducts for FSOC—even if 

those companies have a regulated nonbank financial company subsidiary 

that triggered requisite Stage 1 thresholds—if data regarding the parent 

are unavailable. However, OFR officials said that there likely are few 

private nonbank financial companies that have more than $50 billion in 

assets and are unregulated. For example, OFR officials said they were 

aware of at least one large private company not currently included in the 

Stage 1 analysis, and that the Nonbank Designations Committee is aware 

of this company.

Secretariat staff said that FSOC has been working to improve its 

information access to address data gaps, including efforts to incorporate 

information that SEC collects from certain private funds.47

 

47In 2011, SEC introduced Form PF to collect information from certain registered 

investment advisers about the hedge funds, private equity funds, and other private funds 

they advise.

OFR officials 

told us that they have not yet used the private fund data in a Stage 1 

analysis because of ongoing efforts to improve the data’s quality and 

reliability. Although they agreed that it could take at least one year, OFR 

officials indicated that it was too early in the data improvement process to 

determine a time frame for when they could use SEC’s private fund data 

for Stage 1 analyses. However, even when usable, the private fund data 

will not provide FSOC with necessary information on other types of 

nonbank financial companies, such as some privately held companies, for 

which data are unavailable.
 

Page 46 GAO-15-51 FSOC Determinations

The Dodd-Frank Act grants FSOC authority to direct OFR to obtain 

information from nonbank financial companies if such action were

necessary to assess risk to the U.S. financial system, but OFR officials 

said that FSOC has not yet requested that OFR use this authority—

except in the context of gathering data from companies being evaluated 

in Stage 3.48

Without data necessary to include all nonbank financial companies that 

might warrant further evaluation in its determination process or evaluate 

such companies as a consolidated entity, FSOC may not be able to 

ensure that it identifies and ultimately designates all nonbank financial 

companies that may pose a threat to U.S. financial stability. For example, 

if AIG were a privately owned company, the necessary data would be 

available only for some of its regulated insurance subsidiaries. Thus, an 

assessment of the Stage 1 quantitative thresholds using only such data 

could produce different results than an assessment of the thresholds 

using consolidated data for the entire company.

Secretariat staff said that FSOC has not found it necessary 

to develop a process for collecting data for Stage 1 analysis directly from 

certain nonbank financial companies for which it lacks necessary 

information because it could collect information as needed on a case-bycase basis without establishing an ongoing process. These staff also said 

that obtaining necessary information might require OFR to collect it 

directly from certain companies and to date FSOC has not contacted 

companies before Stage 3 of the determination process. FSOC 

acknowledged in its final rule and guidance that not all relevant data were 

likely to be available for all nonbank financial companies in Stage 1 and 

stated that it therefore could review any nonbank financial company in 

Stage 2 if further analysis were warranted to determine if the company 

could pose a threat to U.S. financial stability.

 

48Section 112 of the Dodd-Frank Act grants FSOC authority to direct OFR to collect 

information from nonbank financial companies and the act also grants OFR the authority 

to collect data on behalf of FSOC. Pub. L. No. 111-203, §§ 112(a)(2)(A), 153(a)(1), 124 

Stat 1376, 1395, 1415 (2010) (codified at 12 U.S.C. § 5322(a)(2)(A)).
 

Page 47 GAO-15-51 FSOC Determinations

FSB has led international efforts to develop methodologies to identify 

global systemically important financial institutions. The determination 

standards and analytical categories in international institutions’ five 

methodologies are similar to FSOC’s assessment methodology for 

nonbank financial companies. However, differences among the 

methodologies include their use of indicators, aggregation of risk scores, 

and their scope of analysis. Some FSOC voting members have been 

involved in both FSOC and FSB assessment processes, but U.S. 

regulators view the processes as separate and distinct.

FSOC’s and international institutions’ methodologies have a number of 

similar features. For example, both approaches intend to identify 

companies that may pose threats to financial stability and assign a 

company-wide supervisor to apply more intensive and consolidated 

supervision (for certain institutions under the international 

methodologies). The methodologies also have similar supervisory goals 

(from FSB’s 2010 systemically important financial institutions framework), 

including reducing the likelihood of and mitigating the potential risks from 

the material financial distress or failure of a systemically important 

company. However, unlike FSOC’s designations, FSB’s identification of

systemically important nonbank financial companies does not have any 

binding effect in any jurisdiction. FSOC’s and several of the international 

institutions’ methodologies consider three transmission channels through 

which a company’s activities or material financial distress may endanger 

the broader financial system—exposure, asset liquidation, and critical 

function substitutability. As shown in table 5, the methodologies include 

similar analytical categories. The five international methodologies have 

similar categories of analysis because the methodological approach for 

banks served as the model for the other methodologies. Three of FSOC’s 

categories overlap directly with those of the international methodologies—

size, interconnectedness, and substitutability. Some of the differences in 

the methodologies represent different configurations and nomenclature. 

For example, the international methodologies include assessment 

categories for global and cross-jurisdictional activity and complexity, 

which are not explicit FSOC assessment metrics (although FSOC does 

examine these factors as part of its Stage 3 evaluation). In addition, three 

International 

Institutions and FSOC 

Have Similar 

Assessment 

Methodologies but 

Differ in Their Use of 

Quantitative 

Measures

International and FSOC 

Methodologies Have 

Similar Assessment 

Categories and Standards 

but Differ in Several Key 

Areas
 

Page 48 GAO-15-51 FSOC Determinations

FSOC metrics are represented in international assessments although not 

as separate analytical categories.49

Table 5: Analytical Categories of Financial Stability Oversight Council (FSOC) and International Assessment Methodologies

International assessment methodologies

Category of analysis

FSOC: 

nonbanks

Basel Committee: 

banks

IAIS: 

insurers

FSB and 

IOSCO: finance 

companies a

FSB and IOSCO: 

market 

intermediaries b

FSB and 

IOSCO: 

investment 

funds b

Size

b

√ √ √ √ √ √

Interconnectedness √ √ √ √ √ √

Global or crossjurisdictional activities- √ √ √ √ √

Substitutability √ √ √ √ √ √

Complexity - √ - √ √ √

Nontraditional and 

noninsurance activities

- - √ - - - 

Leverage √ - - - - - 

Liquidity risk and maturity 

mismatch

√ - - - - - 

Existing regulatory 

scrutiny

√ - - - - - 

Resolvability √ - c - - - - 

Legend: √ / (-) = category is / (is not) present in methodology

Sources: GAO analysis of FSB, Basel Committee, IAIS, IOSCO, and FSOC information. | GAO-15-51

Notes: The table illustrates categories included in FSOC’s and international institutions’ analytical 

frameworks. The absence of a category does not indicate that FSOC and the international institutions 

do not consider certain factors in their evaluations. 

a

IAIS is the International Association of Insurance Supervisors.

b

The Financial Stability Board (FSB) proposed the methodologies—which have not been finalized—in 

consultation with the International Organization of Securities Commissions (IOSCO). 

c

While not part of the six-category framework, resolvability is cited in FSOC’s final rule and guidance 

as a consideration.

Several important differences exist between the methodologies. First, in 

the international context, the standard setters and FSB developed—or 

have been developing—assessment methodologies for five sectors. In 

contrast, FSOC applies an analytical framework that tailors the specific 

 

49The FSOC metrics are the categories of (1) leverage and (2) liquidity risk and maturity 

mismatch and a consideration factor—resolvability.
 

Page 49 GAO-15-51 FSOC Determinations

considerations to each company that it examines. The international 

institutions stated that they intend to apply the sector-specific 

methodologies to companies and plan to reconsider the finished 

methodologies (Basel and IAIS) at least every 3 years. But not all of the 

international assessment analysis occurs at the sector level. For example, 

IAIS’s methodology for insurers incorporates a supplementary 

assessment framework that uses company-specific considerations 

(including analysis of companies’ activities). The supplementary 

assessment framework segments insurers’ activities by type and assigns 

different risk weights to the activities according to their size relative to the 

company’s overall activities.

Second, unlike FSOC’s approach to assessing companies’ potential to 

pose a threat to U.S. financial stability, some of the international 

methodologies are based on a more formulaic approach, in which 

institutions are scored using specific indicators and criteria.50

 

50After scoring institutions, FSB determines a threshold score to identify firms that are 

systemically important. 

For 

example, some of the international methodologies define specific 

indicators under each analytical category. In certain cases, national 

regulators collect nonpublic data from companies and provide the data to 

the relevant standard-setting body for calculating the indicators. For the 

international methodologies that apply a more formulaic approach and 

rely on indicators, much of the judgment exercised by the international 

institutions occurs during the development of methodologies rather than 

in their application. By comparison, FSOC retains some discretion in 

applying metrics and criteria that it deems most appropriate during its 

evaluation of specific companies. Thus, conceptually similar analytical 

categories and indicators may be applied differently by FSOC and FSB 

when evaluating companies. For example, FSOC may examine different 

measurements of market exposures than the international institutions 

when computing a company’s leverage. Furthermore, two of the 

international methodologies—those for banks and insurers—include 

specific calculations for weighting the analytical indicators and categories 

used to produce an aggregate risk score. In contrast, FSOC’s 

determination methodology does not have a formal mechanism for 

weighting evaluation criteria, but instead relies on the judgment of FSOC 

staff and principals in evaluating companies and making determination 

decisions.
 

Page 50 GAO-15-51 FSOC Determinations

Although a subset of the international assessment methodologies rely on 

scoring calculations as the primary basis for company evaluations, they 

also incorporate some supplementary subjective analyses. Specifically, 

the banking and insurance methodologies allow members of the 

standard-setting body to challenge the scoring results for a given 

company based on a quantitative or qualitative rationale related to a 

company’s particular circumstances. The methodologies aim to establish 

a high threshold for such adjustments to the initial indicator score, 

particularly if the adjustment may be self-interested—for example, if a 

national regulator argues for a downward adjustment to the risk score of a 

company in its jurisdiction. In addition, FSB stated that limitations in the 

availability of consistent data for assessing nonbank, noninsurer financial 

companies may restrict the use of scoring indicators.

Some U.S. financial regulators and Treasury, as members of FSB and 

international standard-setting bodies, have been actively involved in 

developing international financial standards. FSB’s membership includes 

three U.S. entities (the heads of which are voting members of FSOC): the 

Federal Reserve, SEC, and Treasury. FSOC member agencies also 

participate in the international standard-setting bodies that developed 

FSB’s methodologies. These are CFTC and SEC in IOSCO; FDIC, OCC, 

and the Federal Reserve in the Basel Committee; and FIO, the state 

insurance commissioner, and the Federal Reserve in IAIS. Treasury 

officials said that U.S. participation in FSB safeguards the U.S. financial 

system by strengthening international regulation and promoting a “level 

playing field” for U.S. firms that operate internationally.

FSB operates through an informal process—reaching consensus through 

discussions among its members, according to Treasury and Federal 

Reserve staff. Federal Reserve officials stated that while FSB does not 

take formal votes, its members may provide input that influences the 

outcome of its decisions to identify systemically important companies but 

that, ultimately, the FSB chair is the final arbiter of whether the group has 

reached consensus. However, as indicated in the proposed 

methodologies for identifying the nonbank, noninsurer institutions, the 

Several FSOC Voting 

Members Also Participate 

in FSB Processes but 

View Them as Separate 

and Distinct
 

Page 51 GAO-15-51 FSOC Determinations

FSB and the national authorities together will determine the final list of 

global systemically important financial institutions.51

FSB identified two U.S. nonbank financial companies as systemically 

important before FSOC made final determinations regarding the 

companies. On July 18, 2013, FSB published a list identifying AIG, 

MetLife, Inc. (MetLife), and Prudential as systemically important, along 

with several non-U.S. companies. At that time, Prudential had received 

FSOC’s proposed determination; FSOC made a final determination on 

September 19, 2013. MetLife announced on July 16, 2013, that it had 

reached Stage 3 of FSOC’s determination process; FSOC had not made 

a final determination as of September 2014.52

Officials from two companies that FSOC evaluated and several business 

and industry membership organizations that we interviewed said that the 

involvement of some FSOC members in FSB’s identification processes 

raised questions about whether those international efforts could influence 

FSOC’s evaluations and determination decisions. Some market 

observers, members of Congress, and an FSOC member have 

expressed similar concerns. However, Treasury officials said the FSB 

action carried no regulatory consequences for the companies in the 

United States unless they also were designated by FSOC. Treasury 

officials stated that FSB’s process has not affected the U.S. nonbank 

financial company determination process because the processes are 

separate and distinct—with FSOC following the standards and criteria in 

the Dodd-Frank Act and FSOC’s final rule and interpretive guidance. 

Treasury officials also said that FSB’s identification of a U.S. company as 

systemically important creates no regulatory or supervisory 

consequences for the company or obligation for FSOC to evaluate the 

company, because in the United States only FSOC has the authority to 

In contrast, FSOC 

designated AIG and GE Capital on July 8, 2013, while FSB identified AIG 

as systemically important on July 18, 2013. FSB has not yet evaluated 

GE Capital because the methodologies for nonbank noninsurers are still 

under development.

 

51Also, in 2013, FSB stated that it had identified an initial list of global systemically 

important insurers in consultation with IAIS and national authorities.

52FSOC follows a practice of not commenting on any company under consideration until a 

final determination is made. As of October 2014, FSOC had not publicly stated that 

MetLife was under consideration for a determination.
 

Page 52 GAO-15-51 FSOC Determinations

subject a nonbank financial company to Federal Reserve supervision and 

enhanced prudential standards. According to these officials, the only 

consequence of an FSOC determination contradicting that of FSB might 

be a negative peer evaluation of the United States by FSB in cases in 

which FSOC does not designate an entity identified by FSB as 

systemically important.

53 Federal Reserve officials also said that FSOC’s 

determination process is separate and independent of FSB’s identification 

of global systemically important financial companies, but described an

FSB identification as one of many factors that FSOC may consider in the 

course of its nonbank financial company evaluations. In our review of the 

documentation supporting FSOC’s determination decisions, we did not 

find references to FSB’s evaluations or designations of global 

systemically important financial companies in FSOC’s evaluation 

considerations, although the absence of such references does not 

necessarily indicate that FSOC did not consider this factor in its 

deliberations.

The Federal Reserve has been conducting rulemaking associated with 

Dodd-Frank requirements for supervision of nonbank financial 

companies. Section 165 of the Dodd-Frank Act directs the Federal 

Reserve to establish enhanced prudential standards for (1) nonbank 

financial companies that FSOC determined will be supervised by the 

Federal Reserve and for (2) bank holding companies with total 

consolidated assets of $50 billion or more.54 The act requires the 

enhanced prudential standards to be more stringent than the standards 

applicable to bank holding companies and nonbank financial companies 

that do not present similar risks to U.S. financial stability.55

 

53To encourage voluntary compliance, FSB utilizes a process of periodic peer review. 

Explicit measures to encourage compliance for countries that do not pass peer review 

include discussions with national authorities and public reports published by FSB.

The standards 

must increase in stringency based on several factors (including a 

company’s size and risk characteristics) and the Federal Reserve must 

consider the differences among bank holding companies and nonbank 

54Pub. L. No. 111-203, § 165(a)(1), 124 Stat 1376, 1423 (2010) (codified at 12 U.S.C. § 

5365(a)(1)).

55Pub. L. No. 111-203, § 165(a)(1)(A), 124 Stat 1376, 1423 (2010) (codified at 12 U.S.C. § 

5365(a)(1)(A)). 

Federal Reserve 

Plans to Tailor Its 

Supervision of 

Nonbank Financial 

Companies
 

Page 53 GAO-15-51 FSOC Determinations

financial companies based on the same factors. The prudential standards 

must include

• risk-based and leverage capital requirements,

• liquidity requirements,

• risk-management and risk committee requirements,

• resolution-planning requirements,

• single counterparty credit limits,

• stress-test requirements, and

• a debt-to-equity limit for companies that FSOC has determined pose a 

grave threat to U.S. financial stability.56

Section 165 also permits the Federal Reserve to establish additional 

prudential standards, including three specified standards—a contingent 

capital requirement, enhanced public disclosures, and short-term debt 

limits.

The Federal Reserve’s final rule establishing enhanced prudential 

standards for bank holding companies did not apply to nonbank financial 

companies.57 In 2012, the Federal Reserve proposed rules to implement 

enhanced prudential standards for nonbank financial companies, bank 

holding companies, and foreign banking organizations.58 It adopted the 

enhanced prudential standards for bank holding companies and foreign 

banking organizations in its final rule (issued in March 2014), but decided 

not to impose the standards on designated nonbank financial companies 

as part of that particular rulemaking. Instead, the Federal Reserve stated 

that it would separately issue orders or rules imposing enhanced 

prudential standards on each designated nonbank financial company or 

category of companies.59

 

5679 Fed. Reg. 17420, 17421 (Mar. 27, 2014). 

In the final rule, the Federal Reserve recognized 

that the types of risks that nonbank financial companies posed to financial 

stability likely would vary by company and that the enhanced prudential 

5779 Fed. Reg. 17240, 17244-45 (Mar. 27, 2014).

58The Federal Reserve issued proposed rules for bank holding companies and designated 

nonbank financial companies on January 5, 2012, and for foreign banking organizations 

and designated foreign nonbank financial companies on December 28, 2012. 77 Fed. 

Reg. 594 (Jan. 5, 2012) and 77 Fed. Reg. 76628 (Dec. 28, 2012).

59The Federal Reserve stated in the final rule that it plans to ensure that nonbank financial 

companies receive notice and opportunity to comment before determination of their 

enhanced prudential standards.
 

Page 54 GAO-15-51 FSOC Determinations

standards applicable to bank holding companies might not be appropriate 

for all designated nonbank financial companies.

For nonbank financial companies designated by FSOC, the Federal 

Reserve intends to assess the company’s business model, capital 

structure, and risk profile to determine how the proposed enhanced 

prudential standards should apply and tailor the application of the 

standards as appropriate.60

Federal Reserve officials said that they have been working to develop a 

supervisory framework for designated nonbank financial companies, but 

did not have a specific time frame for imposing the enhanced standards 

on currently designated companies. Although the standards remain in 

development, officials told us that the Federal Reserve has been 

supervising the three designated companies since their designation in 

2013 and working with the companies on risk management and safety 

and soundness matters. Officials also said that the Federal Reserve 

already was familiar with the designated companies because each had 

been organized as a savings and loan holding company at some point 

before designation.

The Federal Reserve expects to apply 

tailored standards to nonbank financial companies that differ from bank 

holding companies in their activities, risk profile, and other characteristics. 

If the activities and risk profile do not differ, the Federal Reserve expects 

to apply standards similar to those applied to bank holding companies.

61

In addition, the Federal Reserve and FSOC have shared information 

about the proposed standards. The Dodd-Frank Act grants FSOC the 

authority to make recommendations to the Federal Reserve about the 

establishment of heightened prudential standards for nonbank financial 

Moreover, the Federal Reserve has been gathering 

additional company-specific information from the companies, which has 

been helping to inform its development and application of enhanced 

prudential standards.

 

60The Dodd-Frank Act grants the Federal Reserve the authority to differentiate prudential 

standards among companies on an individual basis or by category, taking into 

consideration their capital structure, riskiness, complexity, financial activities, size, and 

any other risk-related factors that the Federal Reserve deems appropriate. Pub. L. No. 

111-203, § 165(a)(2), 124 Stat 1376, 1423-24 (2010) (codified at 12 U.S.C. § 5365(a)(2)).

61Under the Dodd-Frank Act, the Federal Reserve assumed supervision of savings and 

loan holding companies from the Office of Thrift Supervision. Pub. L. No. 111-203, § 312, 

124 Stat 1376, 1521 (2010)(codified at 12 U.S.C. § 5412(b)(1)).
 

Page 55 GAO-15-51 FSOC Determinations

companies, including standards addressing resolution plans, enhanced 

public disclosures, and overall risk management.62

Furthermore, the Federal Reserve issued specific rules requiring 

designated nonbank financial companies to conduct resolution planning 

and stress testing.

However, according to 

Secretariat officials, FSOC has not utilized its authority to make such 

recommendations. Secretariat officials said that FSOC has formed a 

Heightened Prudential Standards Committee, through which FSOC 

consulted with and provided informal input to the Federal Reserve on 

proposed rulemakings. The Federal Reserve stated that it provided 

periodic updates on the development of enhanced prudential standards to 

all FSOC member agencies. Officials from some FSOC member agencies 

said that they expected that FSOC would comment on and discuss 

whether to make recommendations about enhanced prudential standards 

once the Federal Reserve finalized the standards.

63

• The rule on resolution plans—jointly issued with FDIC—includes 

requirements for the submitting company to describe its strategy for 

rapid and orderly resolution in the event of its material financial 

distress or failure. The three designated nonbank financial companies 

submitted their resolution plans on or before July 1, 2014.64

• The Federal Reserve’s stress test regulations require a designated 

nonbank financial company to conduct stress tests if the entity is 

made subject to the provisions pursuant to a rule or order of the 

 

62Pub. L. No. 111-203, § 112(a)(2)(I), 124 Stat 1376, 1395 (2010)(codified at 12 U.S.C. § 

5322(a)(2)(I)). See also, for further description and discussion of these recommendation 

provisions, Pub. L. No. 111-203, § 115, 124 Stat 1376, 1403 (2010)(codified at 12 U.S.C. 

§ 5325).

63In addition, both Treasury and the Federal Reserve assess fees directly on nonbank 

financial companies designated by FSOC. Under an interim final rule, Treasury assesses 

fees for a fund to cover FSOC’s and OFR’s operating and capital costs, as well as some 

other costs. 77 Fed. Reg. 29884 (May 21, 2012). The Federal Reserve’s assessment 

covers the supervisory and regulatory responsibilities for the designated nonbank financial 

companies. 78 Fed. Reg. 52391 (Aug. 23, 2013). Also, FDIC has the authority under 

Dodd-Frank to assess designated nonbank financial companies to recover the portion of 

money obligated in resolving a failed institution under Title II that was not otherwise repaid 

within 60 months of obtaining the funds. (Pub. L. No. 111-203, § 210(o)(1)(D)(ii), 124 Stat. 

1376, 1509-1510 (2010)(codified at 12 U.S.C. § 5390(o)(1)(D)(ii)). 

64For resolution plan submissions, see Board of Governors of the Federal Reserve 

System, Resolution Plans, accessed on August 5, 2014, available at 

http://www.federalreserve.gov/bankinforeg/resolution-plans.htm. 
 

Page 56 GAO-15-51 FSOC Determinations

Federal Reserve.

65 The regulations are effective November 26, 

2014.

66

The recent financial crisis illustrated the importance of addressing 

systemic risks that exist outside traditional banking institutions. Congress 

established FSOC to monitor the stability of the U.S. financial system and 

take actions to mitigate risks that might destabilize the system and 

endowed FSOC with broad authorities, including authority to designate 

nonbank financial companies for Federal Reserve supervision and 

enhanced prudential standards. FSOC has begun evaluating and 

designating such companies and continues to refine and expand its 

efforts. Consistent with its final rule and statutory requirements, FSOC 

used a three-stage process and analytical framework to evaluate 

companies and provided notice to companies and the public with an 

explanation of its determination decisions. However, some market 

participants and observers, financial regulators, and members of 

Congress have questioned the bases of FSOC’s determinations and how 

FSOC evaluates nonbank financial companies. These criticisms 

underscore the importance of FSOC enhancing the transparency and 

systematization of its determination process. This is particularly important 

because of the judgment and discretion involved in applying its analytical 

framework to evaluate different institutions. While FSOC’s transparency 

policy states that it is committed to operating in an open and transparent 

manner, additional clarity could maximize public and market confidence in 

the process.

More generally, FSOC’s ability to effectively identify nonbank financial 

companies for heightened supervision in a way that supports public and 

market confidence could help mitigate the potential for such firms to 

endanger the stability of the U.S. financial system. Specifically, in accord 

with federal internal control standards, OMB policy, and FSOC guidance, 

weaknesses remain in the following areas:

• Tracking and monitoring. FSOC has not centrally collected or 

monitored certain information related to its determination process that 

is critical for internal control activities and managing results—

 

6512 C.F.R. § 252.53(a).

66Capital Plans and Stress Test Rules, 79 Fed. Reg. 64026 (Oct. 27, 2014).

Conclusions
 

Page 57 GAO-15-51 FSOC Determinations

specifically, information on dates needed to track the occurrence and 

duration of key process steps and staff working on determination 

evaluations. The lack of such information may hinder FSOC’s ability to 

effectively monitor the progress and evaluate the efficiency of 

determination evaluations and to ensure the broad participation of 

relevant member agencies and their staff in company evaluations.

• Disclosure and transparency. FSOC lacks full disclosures and 

transparency in certain areas. Currently, FSOC’s final rule and bylaws 

do not address the extent to which companies under evaluation may 

be able to meet with deputies and principals, creating questions 

among companies under review in Stage 3. Although FSOC has 

developed and followed a three-stage process and analytical 

framework for making determination decisions, FSOC’s public basis 

documents have not always fully disclosed or explained the specific 

rationales for determination decisions. FSOC’s public basis 

documents supporting its determinations included only a small portion 

of the information and analysis in its nonpublic basis documents 

(which include information from publicly available sources). FSOC’s 

public disclosures could provide greater insight into why a company’s 

characteristics were or were not considered significant or substantial 

in terms of meeting one of the two statutory determination standards. 

Improved transparency and accountability could bolster public and 

market confidence and help FSOC achieve its goals.

• Scope of evaluation procedures. In conducting determination 

evaluations, FSOC has evaluated companies (including those not 

advanced to Stage 3 for further review) using only the determination 

standard based on a company’s financial distress, not its activities. In 

considering companies for determination using only one standard, 

FSOC may not be identifying companies that meet the other standard 

and therefore may warrant designation. Additionally, data limitations 

have prevented FSOC from including some types of nonbank financial 

companies in its scope of review, and FSOC has not exercised its 

authority to direct OFR to obtain otherwise unavailable data from 

certain nonbank financial companies. As a result, FSOC may not be 

able to ensure that it identifies and ultimately designates all nonbank 

financial companies that may pose a threat to U.S. financial stability.

Making FSOC’s designation process more systematic and transparent 

could enhance accountability, bolster public and market confidence in the 

process, and also help FSOC achieve its intended goals.
 

Page 58 GAO-15-51 FSOC Determinations

We are making the following six recommendations:

To improve FSOC’s control activities and help ensure that it better 

manages its determination process and achieves intended results, the 

Secretary of the Treasury, in his capacity as the Chairperson of FSOC 

and in consultation with FSOC members, should systematically record (1) 

the dates of key process steps and (2) the staff contributing to 

determination evaluations, and monitor such information to help assess 

the progress and efficiency of determination evaluations.

To enhance disclosure and strengthen transparency, the Secretary of the 

Treasury, in consultation with FSOC members, also should take the 

following actions:

• Document and publicly disclose FSOC’s practices regarding the 

circumstances under which companies undergoing Stage 3 

evaluations can interact with FSOC deputies or principals. For 

example, FSOC’s practices could be documented in writing, such as 

in its bylaws, notices to companies, or in the Nonbank Designations 

FAQ section on FSOC’s website, and include whether, when, and on 

what terms companies can access deputies and principals beyond the 

formal hearing process.

• For future determinations, to the maximum extent possible, include 

additional details in its public basis documentation about why FSOC 

determined that the company met one or both of the statutory 

determination standards. Specifically, in addition to identifying that the 

size, significance, or other attributes of the company’s characteristics 

could pose a threat to U.S. financial stability, FSOC should explain—

without revealing sensitive information—how it concluded that the 

characteristics were sufficiently large or significant enough, or had 

other attributes, to meet one or both of the statutory determination 

standards.

Finally, to help ensure that FSOC is comprehensively identifying and 

considering companies, the Secretary of the Treasury in consultation with 

FSOC members, should take the following actions:

• Establish procedures to evaluate companies in Stage 2 and Stage 3 

under both statutory determination standards when an evaluation in 

either stage concludes that a company does not meet one of the 

standards, or document—on a company-specific or more general 

basis—why the second determination standard is not relevant for 

determination evaluations.

Recommendations for 

Executive Action
 

Page 59 GAO-15-51 FSOC Determinations

• Develop a process to collect information necessary for Stage 1 

analysis, as appropriate, from certain nonbank financial companies for 

which public or regulatory information is otherwise unavailable. For 

example, FSOC could have companies for which such information is 

unavailable and that meet certain characteristics (such as quantitative 

thresholds similar to those used in Stage 1) report necessary 

information to OFR.

We provided a draft of this report to the Secretary of the Treasury—as the 

Chairperson of FSOC—for review and comment. Treasury provided 

written comments, which are reprinted in appendix III. Treasury also 

provided extensive technical comments on the draft report, which we 

incorporated as appropriate. Treasury distributed the draft report to staff 

of the FSOC member agencies. Staff of the Consumer Financial 

Protection Bureau, the Federal Reserve, FIO, the independent member 

with insurance expertise, and OFR separately provided technical 

comments on the draft report, which we incorporated as appropriate. 

In its comment letter, Treasury stated that it will consider the report’s 

recommendations but did not say whether it agreed or disagreed with the 

recommendations. Treasury emphasized that FSOC followed the 

nonbank financial company designation process laid out in its final rule 

and interpretive guidance, as we noted in our report. Treasury’s letter 

highlighted statements from the report related to FSOC’s designation 

process, including statements about FSOC’s communication with 

companies under evaluation and the contributions of member agency 

staff. Treasury also wrote that in recent months FSOC received 

suggestions from stakeholders regarding its process for evaluating 

nonbank financial companies and that FSOC has directed staff to review 

and evaluate those and other potential changes. Treasury noted that the 

report’s recommendations complement some of the suggestions 

previously made by other stakeholders and will be included as part of its 

analysis of these suggestions. 

Regarding the recommendation to increase the amount of information 

included in public explanations of the basis for any future designations, 

Treasury pointed out that the nonpublic documentation includes 

extensive, specific, confidential information. Treasury also stated that 

FSOC was committed to operating in an open and transparent manner. 

Treasury wrote that FSOC will consider ways to implement this 

recommendation, while continuing to satisfy statutory requirements and 

provisions of the Open Government Directive and FSOC’s transparency 

Agency Comments 

and Our Evaluation
 

Page 60 GAO-15-51 FSOC Determinations

policy relating to the protection of nonpublic information FSOC receives 

from companies under review. In the draft report, we recognized that 

FSOC has responsibilities to protect sensitive information collected from 

companies and explained that FSOC’s nonpublic documentation included 

publicly sourced information that did not appear in the public versions of 

the basis documents. 

Treasury staff and Federal Reserve staff also provided technical 

comments on the draft report. In addition to clarifying and correcting 

factual statements, some of these comments highlighted concerns with 

the tone and conclusions of some of the draft report’s findings. We 

summarize the most significant comments and our responses below.

• Treasury staff commented that the tone of the draft report’s title and 

headings was inconsistent with the report’s overall findings. In 

particular, Treasury staff noted that the report’s findings largely were

positive, yet the findings associated with the recommendations 

appeared exaggerated, with broad statements unsupported by the 

majority of the report’s findings. We believe the headings and title 

have struck the proper tone and appropriately reflect the evidence in 

the report. While the report identifies steps that FSOC has taken to 

make its designation process systematic and transparent, the report 

also describes parts of the process that are not systematic or 

transparent and recommends additional steps that FSOC could take 

to further improve the process.

• Treasury and Federal Reserve staff provided comments in which they 

disagreed with the draft report’s findings about the extent to which 

FSOC’s documentation disclosed the rationales for determination 

decisions. We maintain that FSOC’s public documentation has not 

always fully disclosed the specific bases for its determination 

decisions and that FSOC’s nonpublic documentation could benefit 

from inclusion of additional detail about some aspects of its 

designation decisions. However, we made certain revisions to the 

report to clarify that the findings and conclusions related to FSOC’s 

documentation of its determination decisions, not to the quality of its 

decisions. We also note that the report’s methodology involved 

examining the process FSOC used to designate nonbank financial 

companies—including the extent to which the process was systematic 

and transparent—and did not evaluate the quality of FSOC’s analysis 

supporting its determination decisions. 

• Treasury and Federal Reserve staff commented that the draft report’s 

findings about recording and tracking information on the designation 
 

Page 61 GAO-15-51 FSOC Determinations

process were inaccurate. Specifically, Treasury staff indicated that 

they now record all dates other than when FSOC begins actively 

reviewing a company in Stage 2. In addition, Federal Reserve staff 

stated that correspondence and records have been maintained and 

important events could be recreated easily through a review of the 

documentation. Federal Reserve staff also disagreed with the report’s 

statements about the potential negative effects of not recording and 

tracking information on the designation process. We made certain 

revisions to the report to clarify the findings and conclusions related to 

recording and tracking information. Although FSOC may record 

certain information in its correspondence and other documents, 

having information dispersed throughout the various documents does 

not facilitate the systematic collection and tracking of information that 

is necessary to monitor performance and manage results. 

• Federal Reserve staff provided comments highlighting concerns with 

the draft report’s findings related to using both statutory determination 

standards when evaluating companies for possible designation. 

Federal Reserve staff wrote that the report suggested that FSOC 

should have used the second statutory determination standard 

(related to a company’s activities) in certain situations but instead 

chose to use only the first standard (related to a company’s material 

financial distress). Federal Reserve staff noted that FSOC has not 

determined to use only the first standard, although in its past 

evaluations the Council and staff concluded that the second standard 

was not appropriate. They also commented that FSOC has not been

required to consider both standards for any particular nonbank 

financial company. While the report states (for the instances we 

reviewed) that FSOC used only the first standard in evaluating the 

nonbank financial companies—including cases in which FSOC 

decided not to advance the company to Stage 3—the report does not 

make any statements about whether FSOC should have used the 

second standard in those evaluations. As noted in the report, the 

Dodd-Frank Act does not require FSOC to evaluate companies using 

both determination standards and allows FSOC to designate any 

nonbank financial company based on either standard. However, we

point out that in using only one standard to evaluate companies FSOC 

may not identify companies that may meet the other standard and 

possibly warrant designation.

We are sending copies of this report to interested congressional 

committees and members, the Secretary of the Treasury, and other 
 

Page 62 GAO-15-51 FSOC Determinations

members of FSOC. In addition, the report is available at no charge on the 

GAO website at http://www.gao.gov. 

If you or your staff have any questions about this report, please contact 

me at (202) 512-8678 or evansl@gao.gov. Contact points for our Offices 

of Congressional Relations and Public Affairs may be found on the last 

page of this report. GAO staff who made major contributions to this report 

are listed in appendix IV.

Sincerely yours,

Lawrance L. Evans, Jr.

Director, Financial Markets and

 Community Investment
Appendix I: Objectives, Scope, and 

Methodology

Page 63 GAO-15-51 FSOC Determinations

Our objectives were to examine (1) how the Financial Stability Oversight 

Council (FSOC) oversees and manages the nonbank financial company 

determination process; (2) the extent to which FSOC followed a 

systematic process for designating nonbank financial companies; (3) how 

the analysis and criteria used in FSOC’s determination process compares 

with methodologies proposed by international institutions; and (4) the 

progress that the Board of Governors of the Federal Reserve System 

(Federal Reserve) made in defining a supervision framework for 

designated nonbank financial companies. We did not include FSOC’s 

designation of systemically important financial market utilities in the scope 

of our review because the Council of Inspectors General on Financial 

Oversight completed an audit of this authority in July 2013.

To examine FSOC’s management of the determination process, we 

reviewed our prior report on FSOC, the Dodd-Frank Wall Street Reform 

and Consumer Protection Act (Dodd-Frank Act), FSOC’s bylaws and 

other documents describing its organizational structure, and FSOC’s final 

rule and guidance outlining its determination process. We reviewed 

FSOC documentation about the status and outcome of its determination 

evaluations, including the number of companies that have reached 

different stages in the process. We also collected and analyzed 

information from FSOC members on their participation in the 

determination process from 2011 until the middle of 2014, including the 

number of staff contributors, the amount and type of their contributions, 

and their roles in leading company evaluations. We interviewed officials 

and staff from FSOC members and member agencies on the 

determination process, the components within FSOC involved in making 

determination decisions (including FSOC’s committee structure), FSOC’s 

identification of members and staff to conduct evaluations, and FSOC’s 

communication with companies undergoing evaluation. We also 

interviewed officials from four companies that were evaluated or were in 

the final stage of the process about their interactions with FSOC, 

including the method, content, and timing of communications. We used 

criteria from Standards for Internal Control in the Federal Government to 

evaluate FSOC’s efforts to manage the determination process.

To address the extent to which FSOC has used a systematic process in 

designating companies, we reviewed the Dodd-Frank Act and publicly 

available FSOC documents, including its final rule and guidance on the 

determination process, Council and committee bylaws, and documents 

supporting its final determinations. We analyzed nonpublic records that 

document FSOC’s determination evaluations and decisions, including 

determination basis documents for Stage 2 and Stage 3 reviews, 

Appendix I: Objectives, Scope, and 

Methodology
Appendix I: Objectives, Scope, and 

Methodology

Page 64 GAO-15-51 FSOC Determinations

documentation of the Stage 1 methodology that the Office of Financial 

Research uses, quarterly Stage 1 analysis results, and FSOC’s 

communications and data requests to companies from Stage 3 to the end 

of the determination process. We used a uniform data collection 

instrument to collect and analyze information from the nonpublic 

documents. The collected information included the metrics and analysis 

FSOC used in applying its analytical framework, committee 

recommendations about advancing or not advancing companies to Stage 

3, and the basis for FSOC’s final determination decisions. We used the 

collected information to assess the extent to which FSOC followed the 

process established in its rule and guidance and provisions in the DoddFrank Act. We conducted this assessment by comparing FSOC’s analysis 

of each company that it evaluated in each stage of its process with 

FSOC’s analytical framework. We also collected and reviewed 

information on how FSOC advanced companies through its evaluation 

and determination process, communicated with companies undergoing 

evaluation, and collected information from third parties. We assessed the 

collected information within and across the companies that FSOC 

evaluated to determine the extent to which FSOC conducted the 

evaluations consistently. In addition, we interviewed officials and staff 

from FSOC members and member agencies and discussed, among other 

things, the determination process and how FSOC formulated the 

approach and analytical framework for the process. To obtain additional 

information on FSOC’s determination process, we interviewed four 

industry trade groups, including those representing insurers and asset 

managers, and one company. We used criteria from Standards for 

Internal Control in the Federal Government, Dodd-Frank Act provisions 

on FSOC’s authorities, and transparency principles, including directives 

issued by the Office of the Management and Budget and FSOC’s own 

transparency policy to evaluate FSOC’s determination process.

To assess how FSOC’s determination process compares with the 

methodologies of international institutions, we examined documents on 

the evaluation of systemically important institutions from four international 

institutions: the Financial Stability Board, the Basel Committee on 

Banking Supervision, the International Association of Insurance 

Supervisors, and the International Organization of Securities 

Commissions. We identified five sector-specific methodologies that these 

organizations developed to identify systemically important banks and 

nonbank financial companies and compared the methodologies with 

FSOC’s. We focused our analysis on identifying similarities and 

differences in approaches—including analytical categories and metrics—

to evaluating the importance of bank and company activities and financial 
Appendix I: Objectives, Scope, and 

Methodology 

Page 65 GAO-15-51 FSOC Determinations

condition to financial stability. We interviewed officials and staff from 

FSOC members and member agencies about the international 

methodologies, the extent to which FSOC or FSOC member agencies 

participated in those processes, including developing analytical 

frameworks or identifying systemically important nonbank financial 

companies. To obtain additional information on the international 

methodologies and the sequence of their identifications and FSOC 

determinations, we also interviewed four nonbank financial companies 

that FSOC evaluated and four industry trade associations.

To determine the Federal Reserve’s progress in establishing a framework 

for supervising designated companies, we reviewed the Dodd-Frank Act 

and the Federal Reserve’s proposed and final regulations about 

enhanced prudential standards for nonbank financial companies and 

bank holding companies. We also interviewed FSOC and Federal 

Reserve officials about the Federal Reserve’s development of a 

supervision framework and prudential standards for designated nonbank 

financial companies and FSOC’s role in the process.

We conducted this performance audit from October 2013 to November 

2014 in accordance with generally accepted government auditing 

standards. Those standards require that we plan and perform the audit to 

obtain sufficient, appropriate evidence to provide a reasonable basis for 

our findings and conclusions, based on our audit objectives. We believe 

that the evidence obtained provides a reasonable basis for our findings 

and conclusions based on our audit objectives.
Appendix II: Committees of the Financial 

Stability Oversight Council

Page 66 GAO-15-51 FSOC Determinations

The Financial Stability Oversight Council (FSOC) has established seven 

committees, which are listed and briefly described below.

• Deputies Committee: Coordinates and oversees the work of the 

interagency staff committees. The members of the Deputies 

Committee are senior officials from each of the member agencies. A 

senior official of the Department of the Treasury chairs this committee.

• Systemic Risk Committee: Monitors systemic risk and plays a role in 

prioritizing the review of sources of systemic risk and guiding the work 

of staff. Includes senior staff and reports to the Deputies Committee.

• Institutions Subcommittee: Focuses on identifying and analyzing 

topics that affect financial institutions in the medium and longer term. 

It also attempts to identify structural concerns in financial institutions 

that could threaten financial stability, such as trends in leverage or 

funding structure, new products, or exposures to particular risks.

• Markets Subcommittee: Focuses on identifying and analyzing topics 

that affect financial markets in the medium and longer term, including 

structural concerns within financial markets that could threaten 

financial stability, such as trends in volatility or liquidity, market 

structure, or asset valuations.

• Designation of Nonbank Financial Companies Committee:

Supports FSOC in considering, making, and reviewing designations of 

nonbank financial companies to be supervised by the Board of 

Governors of the Federal Reserve System (Federal Reserve). 

• Designation of Financial Market Utilities and Payment, Clearing, 

and Settlement Activities Committee: Supports FSOC in 

considering, making, and reviewing designations of financial market 

utilities and payment, clearing, and settlement activities.

• Heightened Prudential Standards Committee: Supports FSOC in 

making recommendations for heightened prudential standards for 

designated nonbank financial companies and large, interconnected 

bank holding companies, and for other financial activities and 

practices that could affect financial stability. This committee also 

supports FSOC in monitoring regulatory developments, facilitating 

information sharing, recommending supervisory priorities and 

principles, and identifying gaps in regulation that could pose risks.

• Orderly Liquidation Authority, Resolution Plans Committee:

Supports any FSOC recommendations on resolution plan 

requirements, consideration of filed resolution plans, and 

consideration of Federal Deposit Insurance Corporation and Federal 

Reserve proposed orders to require divestiture; and consults with 

FSOC on rulemakings to implement the Title II orderly liquidation 

authority.

Appendix II: Committees of the Financial 

Stability Oversight Council
Appendix II: Committees of the Financial 

Stability Oversight Council

Page 67 GAO-15-51 FSOC Determinations

• Data Committee: Supports FSOC coordination of, and consultation 

on, agency rulemakings on data collection, and seeks to minimize 

duplication of data-gathering operations. Supports a coordinated 

approach to information sharing and provides direction to, and 

requests data from, the Office of Financial Research and works with 

that office on data standardization.
Appendix III: Comments from the Department 

of the Treasury

Page 68 GAO-15-51 FSOC Determinations

Appendix III: Comments from the 

Department of the Treasury
Appendix III: Comments from the Department 

of the Treasury

Page 69 GAO-15-51 FSOC Determinations
Appendix IV: GAO Contact and Staff 

Acknowledgments

Page 70 GAO-15-51 FSOC Determinations

Lawrance L. Evans, Jr., (202) 512-8678, evansl@gao.gov. 

In addition to the contact named above, Debra R. Johnson (Assistant 

Director), Kevin Averyt (Analyst-in-Charge), Nancy Barry, Andrew 

Kurtzman, Risto Laboski, Kun-Fang Lee, Barbara Roesmann, Jessica 

Sandler, Jena Sinkfield, and Verginie Tarpinian made key contributions to 

this report. Other assistance was provided by William Chatlos, Rachel 

DeMarcus, Janet Eackloff, Michael Hoffman, and Susan Sawtelle. 

Appendix IV: GAO Contact and Staff 

Acknowledgments

GAO Contact

Staff 

Acknowledgments

(250756)
The Government Accountability Office, the audit, evaluation, and 

investigative arm of Congress, exists to support Congress in meeting its 

constitutional responsibilities and to help improve the performance and 

accountability of the federal government for the American people. GAO 

examines the use of public funds; evaluates federal programs and 

policies; and provides analyses, recommendations, and other assistance 

to help Congress make informed oversight, policy, and funding decisions. 

GAO’s commitment to good government is reflected in its core values of 

accountability, integrity, and reliability.

The fastest and easiest way to obtain copies of GAO documents at no 

cost is through GAO’s website (http://www.gao.gov). Each weekday 

afternoon, GAO posts on its website newly released reports, testimony, 

and correspondence. To have GAO e-mail you a list of newly posted 

products, go to http://www.gao.gov and select “E-mail Updates.”

The price of each GAO publication reflects GAO’s actual cost of 

production and distribution and depends on the number of pages in the 

publication and whether the publication is printed in color or black and 

white. Pricing and ordering information is posted on GAO’s website, 

http://www.gao.gov/ordering.htm. 

Place orders by calling (202) 512-6000, toll free (866) 801-7077, or 

TDD (202) 512-2537. 

Orders may be paid for using American Express, Discover Card, 

MasterCard, Visa, check, or money order. Call for additional information.

Connect with GAO on Facebook, Flickr, Twitter, and YouTube. 

Subscribe to our RSS Feeds or E-mail Updates. Listen to our Podcasts. 

Visit GAO on the web at www.gao.gov. 

Contact:

Website: http://www.gao.gov/fraudnet/fraudnet.htm

E-mail: fraudnet@gao.gov

Automated answering system: (800) 424-5454 or (202) 512-7470

Katherine Siggerud, Managing Director, siggerudk@gao.gov, (202) 512-

4400, U.S. Government Accountability Office, 441 G Street NW, Room 

7125, Washington, DC 20548

Chuck Young, Managing Director, youngc1@gao.gov, (202) 512-4800

U.S. Government Accountability Office, 441 G Street NW, Room 7149 

Washington, DC 20548

GAO’s Mission

Obtaining Copies of 

GAO Reports and 

Testimony

Order by Phone

Connect with GAO

To Report Fraud, 

Waste, and Abuse in 

Federal Programs

Congressional 

Relations

Public Affairs

Please Print on Recycled Paper.