FINANCIAL 

STABILITY

New Council and 

Research Office 

Should Strengthen the 

Accountability and 

Transparency of Their 

Decisions

Report to Congressional Requesters

September 2012

GAO-12-886

United States Government Accountability Office

GAO
 United States Government Accountability Office 

Highlights of GAO-12-886, a report to 

congressional requesters 

September 2012 

FINANCIAL STABILITY

New Council and Research Office Should Strengthen 

the Accountability and Transparency of Their 

Decisions 

What GAO Found

These new organizations—the Financial Stability Oversight Council (FSOC) and 

Office of Financial Research (OFR)—face challenges in achieving their missions. 

Key FSOC missions—to identify risks and respond to emerging threats to 

financial stability—are inherently challenging, in part, because risks to financial 

stability do not develop in precisely the same way in successive crises. 

Collaboration among FSOC members can also be challenging at times, as 

almost all of them represent independent agencies that retained existing 

authorities. OFR faces the challenge of trying to establish and build a world-class 

research organization while meeting shorter-term goals and responsibilities. 

FSOC’s and OFR’s management mechanisms to carry out their missions could 

be enhanced to provide greater accountability and transparency. FSOC and OFR 

have taken steps toward establishing such mechanisms. FSOC has established 

seven standing committees generally composed of staff of its members and 

member agencies to support the council in carrying out its business and provide 

information to the council for decision making and adopted a memorandum of 

understanding on information sharing to help govern its activities. FSOC and 

OFR have also issued annual reports on their activities and created web pages 

that provide some information to the public. However, certain mechanisms could 

be strengthened. For instance: 

 FSOC’s Systemic Risk Committee, which is responsible for identifying risks to 

financial stability, has procedures to facilitate analysis of risks raised by staff. 

However, without a more systematic approach and comprehensive 

information, FSOC member agencies, on their own, may not be well 

positioned to judge which potential threats will benefit from interagency 

discussions. GAO recommends that FSOC collect and share key financial risk 

indicators as part of a systematic approach to help identify potential threats to 

financial stability. 

 Public information on FSOC’s and OFR’s decision making and activities is 

limited, which makes assessing their progress in carrying out their missions 

difficult. GAO recommends that (1) FSOC keep detailed records of closeddoor sessions and (2) both entities develop a communication strategy to 

improve communications with the public. 

 FSOC’s annual reports—which serve as its key accountability documents—do 

not consistently identify which entities should monitor or implement the 

identified recommendations or give time frames for specific actions. To hold 

FSOC accountable for its recommendations, GAO recommends that FSOC 

recommend a lead agency or agencies to monitor or implement each 

recommendation within specified time frames. 

 OFR issued a strategic framework in March 2012 as an important first step in 

adopting a strategic planning and performance management system. 

However, that document lacked some leading practices such as linking 

activities to strategic goals and performance measurement systems. GAO 

recommends that OFR further develop a strategic planning and performance 

management system that includes these elements and will allow it to be held 

accountable. 

View GAO-12-886. For more information, 

contact A. Nicole Clowers at (202) 512-8678 

or clowersa@gao.gov. 

Why GAO Did This Study 

In 2010, the Dodd-Frank Wall Street 

Reform and Consumer Protection Act 

created FSOC to identify and address 

threats to the stability of the U.S. 

financial system and OFR to support 

FSOC and Congress by providing 

financial research and data. GAO was 

asked to examine (1) any challenges 

FSOC and OFR face in fulfilling their 

missions (2) FSOC and OFR’s efforts 

to establish management structures 

and mechanisms to carry out their 

missions, (3) FSOC and OFR’s 

activities for supporting collaboration 

among their members and external 

stakeholders, and (4) the processes 

FSOC used to issue rules and reports. 

GAO reviewed FSOC documents 

related to the annual reports, 

rulemakings, and committee 

procedures, as well as documents on 

OFR’s budget, staffing, and strategic 

planning. GAO also interviewed FSOC 

and OFR staff, FSOC member and 

member agency staff, and external 

stakeholders, including foreign officials, 

industry trade groups, and academics. 

What GAO Recommends 

GAO makes 10 recommendations to 

strengthen the accountability and 

transparency of FSOC and OFR’s 

decisions and activities as well as to 

enhance collaboration among FSOC 

members and with external 

stakeholders. Treasury said, as 

Chairperson, that the council and OFR 

would consider the recommendations, 

but questioned the need for FSOC and 

OFR to clarify responsibilities for 

monitoring threats to financial stability 

and stated that OFR expects to share 

some risk indicators. However, 

stronger and more systematic actions 

are still needed in these areas. 
Highlights of GAO-12-886 (Continued) 

 United States Government Accountability Office 

FSOC Membership 

Although FSOC and OFR have taken steps to promote 

collaboration among FSOC members and external 

stakeholders, FSOC could further adopt key practices. 

FSOC member agency staff noted that agencies have 

leveraged their joint expertise and resources to produce 

FSOC’s mandated reports and rules. OFR has also taken 

steps to collaborate with external stakeholders by initiating 

a working paper series, moving to form an advisory 

committee, and coordinating U.S. efforts at the 

international level to help create a legal entity identifier for 

financial entities that could enable regulators to identify 

parties to financial transactions. However, FSOC could do 

more to promote collaboration. For instance, FSOC, and 

OFR are required to monitor risks to financial stability, but 

they have not yet clarified agency responsibilities for 

implementation—creating the potential for regulatory gaps 

or duplication of effort. In addition, FSOC could take better 

advantage of statutory mechanisms to leverage external 

resources, including developing advisory committees. To 

improve collaboration and coordination among its member 

agencies and with external stakeholders, GAO 

recommends that FSOC (1) develop policies to clarify 

when formal collaboration or coordination should occur 

and FSOC’s role in such efforts, (2) more fully incorporate 

key practices for successful collaboration that GAO has 

previously identified, and (3) clarify roles and 

responsibilities for implementing requirements to monitor 

risks to the financial system. 

FSOC has issued rules that improve the transparency of 

its processes, and statutorily mandated reports but has not 

established processes to help ensure that these will have 

their intended results. While FSOC has issued rules on 

processes for designating nonbank financial entities for 

additional oversight and intends to review certain aspects 

of those rules, it has not developed plans for 

comprehensively evaluating whether designations are 

having their intended impact—reducing threats to financial 

stability. The impact of the designations on the economy 

and the financial entities will depend, in part, on a number 

of rules being issued by independent FSOC member 

agencies that will be applied to those being designated. 

Without a comprehensive assessment of the impact of 

these rules that will require the cooperation of individual 

FSOC members, understanding whether the designations 

are having their intended impact will be difficult. GAO 

recommends that FSOC develop a comprehensive 

framework for assessing the impact of its designation 

decisions. In addition, FSOC has not developed a 

systematic forward-looking process for identifying potential 

emerging threats in its mandated annual reporting process. 

In particular, FSOC does not have processes for 

consistently identifying such threats, separating them from 

more current threats, or prioritizing them. Identifying a 

large number of threats—the 2011 report identified over 

30—without prioritizing them makes focusing on those that 

are most important difficult for decisionmakers. The 2012 

report also included many threats, and neither report 

separates current threats from those that are potentially 

emerging. To improve FSOC’s annual reporting on 

potential emerging threats, GAO recommends that FSOC 

develop more systematic approaches that are forward 

looking and help to prioritize the threats. 
Page i GAO-12-886 Financial Stability Entities

Letter 1 

Background 3

FSOC and OFR Face Challenges Achieving Their Missions 8

FSOC’s and OFR’s Management Structures and Mechanisms Could 

Be Enhanced to Provide Greater Accountability and 

Transparency 11

FSOC and OFR Have Taken Steps to Collaborate but Could 

Enhance Their Efforts 30

FSOC Has Issued Rules and Reports but Processes May Not Ensure 

That Ongoing Activities Have the Intended Results 39

Conclusions 50

Recommendations for Executive Action 54

Agency Comments and Our Evaluation 56

Appendix I Objectives, Scope, and Methodology 59

Appendix II Standing Committees of the Financial Stability Oversight Council 62

Appendix III Comments from the Department of the Treasury 64

Appendix IV GAO Contact and Staff Acknowledgments 67

Tables

Table 1: FSOC Rules Issued between July 21, 2010 and July 20, 2012 42

Table 2: Reports Mandated by the Dodd-Frank Act and Issued by 

FSOC from July 21, 2010 to July 20, 2012 47

Figures

Figure 1: FSOC Membership 6

Figure 2: OFR Organizational Chart, as of July 2012 14

Figure 3: Selected Tools for Monitoring Risks to Financial Stability 25

Contents
Page ii GAO-12-886 Financial Stability Entities

Abbreviations

CFTC Commodity Futures Trading Commission

CIGFO Council of Inspectors General on Financial 

 Oversight

Dodd-Frank Act Dodd-Frank Wall Street Reform and Consumer 

 Protection Act

EU European Union

Executive Orders Executive Orders 12866 and 13563

FACA Federal Advisory Committee Act

FDIC Federal Deposit Insurance Corporation

Federal Reserve Board of Governors of the Federal Reserve System

FFIEC Federal Financial Institutions Examination Council

FMU financial market utility

FOIA Freedom of Information Act

FSOC Financial Stability Oversight Council

GPRA Government Performance and Results Act of 1993,

 as amended

G20 Group of 20

MOU memorandum of understanding

NPR notice of proposed rulemaking

OCC Office of the Comptroller of the Currency

OFR Office of Financial Research

OIG Treasury Office of the Inspector General

SEC Securities and Exchange Commission

Treasury Department of the Treasury

UK United Kingdom

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-12-886 Financial Stability Entities

United States Government Accountability Office

Washington, DC 20548

September 11, 2012

The Honorable Spencer Bachus

Chairman

Committee on Financial Services

House of Representatives

The Honorable Randy Neugebauer

Chairman

Subcommittee on Oversight and Investigations

Committee on Financial Services

House of Representatives

The 2007-2009 financial crisis focused attention on weaknesses in the 

U.S. regulatory structure, including the lack of an agency or mechanism 

responsible for monitoring and addressing risks across the financial 

system and a shortage of timely information to facilitate that oversight. In 

response to the crisis, Congress passed the Dodd-Frank Wall Street 

Reform and Consumer Protection Act (Dodd-Frank Act) in July 2010, 

which provided for a broad range of regulatory reforms.1 Among many 

other things, 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 The DoddFrank Act also created the Office of Financial Research (OFR) to support 

FSOC and Congress by providing financial research and data.3

 

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 to designate nonbank financial companies for 

heightened supervision by the Board of Governors of the Federal 

Reserve System (Federal Reserve) and to require financial companies to 

provide data to OFR. Congress set up some specific accountability 

mechanisms for FSOC and OFR, such as requiring annual reports and 

2

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. The following sections of this report describe FSOC’s specific 

functions in detail. 

3

The provisions dealing with OFR are contained primarily in subtitle B of title I, §§ 151-

156, codified at 12 U.S.C. §§ 5341-5346. 

 
 

Page 2 GAO-12-886 Financial Stability Entities

testimonies. However, some members have emphasized that to hold 

FSOC and OFR accountable, it needs to have a full understanding of the 

operations and decision making processes of these entities to help 

ensure that FSOC and OFR use their authorities as Congress intended.

To help provide oversight of FSOC and OFR, the Dodd-Frank Act gave 

GAO authority to audit these new entities, including their structures, 

staffing, and decision making processes. Under this authority, you asked 

us to examine the standing-up of these new entities. This report examines 

(1) any challenges FSOC and OFR face in fulfilling their missions; (2) 

FSOC’s and OFR’s efforts in establishing management structures and 

mechanisms to carry out their missions and attain their goals; (3) FSOC’s 

and OFR’s activities for supporting collaboration among members and 

external stakeholders, including international bodies and regulators; and 

(4) FSOC’s processes used to issue rules and reports.

To identify and examine any challenges faced by FSOC and OFR, we 

reviewed our prior reports on financial reform and the 2007-2009 financial 

crisis and statements by government officials and academic experts. To 

assess their progress in establishing management structures and 

mechanisms, we reviewed documents and interviewed officials on 

FSOC’s and OFR’s missions, budgeting, staffing, data security, and 

planning. We assessed the reliability of OFR’s staffing data and 

determined that the data were sufficiently reliable for the purposes of this 

report. In addition, we reviewed literature on tools used or proposed by 

entities that write financial stability reports, and others, to identify potential 

threats to financial stability. We also coordinated with the inspectors 

general from the Department of the Treasury (Treasury) and the Council 

of Inspectors General on Financial Oversight (CIGFO) on their reviews of 

OFR and FSOC, respectively.4

To evaluate FSOC’s and OFR’s activities for collaboration among 

members and external stakeholders, we analyzed FSOC policies, 

procedures, and products to determine whether and how their practices 

 

4

The Council of Inspectors General on Financial Oversight, which was created by the 

Dodd-Frank Act, is made up of the inspectors general of eight federal agencies—the 

Federal Reserve, Commodity Futures Trading Commission (CFTC), Department of 

Housing and Urban Development, Treasury, Federal Deposit Insurance Corporation

(FDIC), Federal Housing Finance Agency, National Credit Union Administration, and 

Securities and Exchange Commission (SEC)—and the Special Inspector General of the 

Troubled Asset Relief Program. 
 

Page 3 GAO-12-886 Financial Stability Entities

compared with key elements of effective collaboration we have previously 

identified.5

We conducted this performance audit from November 2011 to September

2012 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.

We also reviewed selected documents from international 

bodies for evidence of changes in their dealings with U.S. financial 

regulators since FSOC’s creation. To examine FSOC’s processes for 

issuing rules and reports, we identified products that had been issued as 

of July 20, 2012, and reviewed the processes used to develop them. We 

compared documentary and testimonial information from Treasury 

officials with rulemaking criteria established in our prior work and with 

standard economic practice. For all objectives, we interviewed FSOC and 

OFR staff and officials from FSOC’s member agencies. We also 

interviewed external stakeholders, including foreign officials, industry 

trade groups, and academics on various topics related to our objectives. 

For more information on our scope and methodology, see appendix I.

For some time, we have been reporting that the U.S. financial regulatory 

system has relied on a fragmented and complex arrangement of federal 

and state regulators to oversee its institutions.6

 

5

GAO, Results-Oriented Government: Practices That Can Help Enhance and Sustain 

Collaboration among Federal Agencies, 

This system—put into 

place over the last 150 years—has not kept pace with major 

developments in financial markets and products in recent decades. In 

particular, the current system was not designed to oversee today’s large 

and interconnected financial institutions, whose activities pose new risks 

GAO-06-15 (Washington, D.C.: Oct. 21, 2005). 

6

See for example, GAO, Financial Regulation: Modernization of the Financial Services 

Regulatory System, GAO/T-GGD-95-121 (Washington, D.C.: Mar. 15, 1995); Long-Term 

Capital Management: Regulators Need to Focus Greater Attention on Systemic Risk, 

GAO/GGD-00-3 (Washington, D.C.: Oct. 29, 1999); Financial Regulation: Industry 

Changes Prompt Need to Reconsider U.S. Regulatory Structure, GAO-05-61

(Washington, D.C.: Oct. 6, 2004); Financial Regulation: A Framework for Crafting and 

Assessing Proposals to Modernize the Outdated U.S. Financial Regulatory System, 

GAO-09-216 (Washington, D.C.: Jan. 8, 2009); and High-Risk Series: An Update,

GAO-09-271 (Washington, D.C.: January 2009). 

Background 
 

Page 4 GAO-12-886 Financial Stability Entities

to the institutions themselves as well as to the broader financial system. 

This risk to the broader financial system, called systemic risk, refers to the 

possibility that a single event could broadly affect the entire financial 

system, causing widespread losses rather than just losses at one or a few 

institutions. Given these observations and concerns, we offered a 

framework for crafting and evaluating regulatory reform proposals that 

would have the characteristics that should be reflected in any new 

regulatory system.7 For example, we said that a regulatory system should 

minimize regulatory burden and promote accountability. We also 

designated reforming the financial regulatory system as a high-risk area 

in 2009.8

FSOC’s three primary purposes under the Dodd-Frank Act are to

1. identify risks to the financial stability of the United States that could 

arise from the material financial distress or failure, or ongoing 

activities, of large, interconnected bank holding companies and 

nonbank financial companies, as well as risks that could arise outside 

the financial services marketplace;

2. promote market discipline by eliminating expectations on the part of 

shareholders, creditors, and counterparties of these large companies 

that the U.S. government will shield them from losses in the event of 

failure; and

3. respond to emerging threats to the stability of the U.S. financial 

system. 

To achieve these purposes, the Dodd-Frank Act gave FSOC a number of 

important authorities that allow it to

• collect information across the financial system so that regulators will 

be better prepared to address emerging threats;

• designate for supervision by the Federal Reserve those nonbank 

financial companies that pose risks to the financial system as defined 

by the act;

 

7

GAO-09-216. The framework included a total of nine characteristics: clearly defined 

regulatory goals; appropriately comprehensive; system-wide focus; flexibility and 

adaptability; efficiency and effectiveness; consistent consumer and investor protections; 

independence, prominence, authority, and accountability for regulators; consistent 

financial oversight; and minimal taxpayer exposure.

8

GAO-09-271. 
 

Page 5 GAO-12-886 Financial Stability Entities

• designate as systemically important certain financial market utilities 

(FMU) and payment, clearing, or settlement activities, requiring them 

to meet prescribed risk management standards, and subjecting them 

to enhanced regulatory oversight;9

• recommend stricter standards for the large, interconnected bank 

holding companies and nonbank financial companies designated for 

enhanced supervision;

• vote on determination by the Federal Reserve that action should be 

taken to break up institutions that pose a “grave threat” to U.S. 

financial stability; and

• facilitate information sharing and coordination among the member 

agencies to eliminate gaps in the regulatory structure.10

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, rulemakings, recommendations, and reports and 

testimony to Congress. The Secretary, in consultation with the other 

FSOC members, is also responsible for regular consultation with the 

financial regulatory entities and other appropriate organizations of foreign 

governments or international organizations. As shown in figure 1, the 

Dodd-Frank Act provides that FSOC consists of 10 voting members and 5 

nonvoting members. The 10 voting members provide a federal regulatory 

perspective and an independent insurance expert’s view. The 5 nonvoting 

members offer different insights as state-level representatives from bank, 

securities, and insurance regulators or as the directors of some new 

offices within Treasury—OFR and the Federal Insurance Office—that 

were established by the Dodd-Frank Act. The Dodd-Frank Act requires 

that the council meet at least once a quarter.

 

9

Financial market utilities are multilateral organizations such as payment systems, central 

securities depositories, and central counterparties that provide the essential infrastructure 

to clear and settle payments and other financial transactions. 

10Treasury, Financial Research Fund FY 2013 President’s Budget Submission accessed 

Feb. 22, 2012, http://www.treasury.gov/about/budget-performance/Documents/14- FY 

2013 FRF CJ.pdf. 
 

Page 6 GAO-12-886 Financial Stability Entities

Figure 1: FSOC Membership

The Dodd-Frank Act established OFR to serve FSOC and its member 

agencies by improving the quality, transparency, and accessibility of 

financial data and information, conducting and sponsoring research 

related to financial stability, and promoting best practices in risk 

management. The act requires OFR to set up a data center and a 

research and analysis center to, among other things,

• collect and provide data to FSOC and member agencies;

• standardize the types and formats of data reported and collected;

• perform applied and essential long-term research;

• develop tools for risk measurement and monitoring; and

• make the results of its activities available to financial regulatory 

agencies.

FSOC and OFR do not receive appropriated funds. During the 2-year 

period following the enactment of the Dodd-Frank Act, the Federal 

Reserve provided OFR funds to cover the expenses of the office. Moving 

forward, OFR will be funded through assessments levied on bank holding 
 

Page 7 GAO-12-886 Financial Stability Entities

companies with total consolidated assets of $50 billion or more and 

nonbank financial companies designated by FSOC for supervision by the 

Federal Reserve.11 Until FSOC finalizes its designations for nonbank 

financial companies, assessments will be levied only against large bank 

holding companies. The collected assessments will be deposited into the 

Financial Research Fund, which was established within Treasury to fund 

the expenses of OFR. FSOC’s expenses are considered expenses of 

OFR. The President’s fiscal year 2013 budget included estimates of about 

$123 million for the Financial Research Fund for fiscal year 2012 and 

about $158 million for fiscal year 2013. Most of these funds are to support 

OFR, but the estimates include about $8 million for FSOC operations in 

fiscal year 2012 and nearly $9 million in fiscal year 2013.12 Most of OFR’s 

funding is budgeted for contractual services—including reimbursable 

support from Treasury and administrative services from the Office of the 

Comptroller of the Currency (OCC) and the Bureau of Public Debt—

employees and equipment.13

 

11As will be discussed later in this report, the Dodd-Frank Act provided that FSOC may 

determine whether a nonbank financial company shall be supervised by the Federal 

Reserve and subject to prudential standards if it determines that material financial distress 

at the nonbank financial company, or the nature, scope, size, scale, concentration, 

interconnectedness, or mix of the activities of the company, could pose a threat to the 

financial stability of the United States. The act lists specific factors for FSOC to consider in 

making these determinations along with any other risk-related factors it deems 

appropriate. Large bank holding companies (with total consolidated assets of $50 billion or 

more) are automatically subject to enhanced supervision and prudential standards, 

according to the act. The Secretary of the Treasury, with the approval of FSOC, 

establishes regulations for determining the assessments levied on these nonbank financial 

companies and large bank holding companies. The assessments are to take into account 

differences among the companies based on the considerations for establishing prudential 

standards and are to equal OFR’s total expenses.

12The budget submission also included payments to FDIC for reimbursement of 

implementation expenses, such as rule writing and resolution planning, for about $5 

million in fiscal year 2012 and about $11 million in fiscal year 2013. 

13A substantial portion of OFR’s basic services are performed through reimbursable 

arrangements with Treasury and through other interagency arrangements that fall under 

the contractual services category. Specifically, this includes reimbursable support from 

departmental offices within Treasury; benefits from OCC; and services from the Bureau of 

Public Debt including human resource, procurement, and financial management services. 
 

Page 8 GAO-12-886 Financial Stability Entities

Key FSOC missions—to identify risks to U.S. financial stability and 

respond to emerging threats to stability—are inherently challenging. Risks 

to the stability of the U.S. financial system are difficult to identify because 

key indicators, such as market prices, often do not reflect these risks. 

Further, such threats do not develop in precisely the same way in 

successive crises, making them harder to identify. As FSOC’s 

chairperson acknowledged in FSOC’s 2011 Annual Report, the most 

significant threats to the stability of the financial system will often be the 

ones that are hardest to diagnose and preempt. Moreover, financial 

innovations that are not well understood further complicate the challenge. 

For example, prior to the 2007-2009 financial crisis, some experts viewed 

the risks associated with falling housing prices as a regional 

phenomenon. With the advent of mortgage-backed securities, these 

experts believed that the danger that falling house prices posed on the 

regional level had been mitigated, as they thought these securities had 

diversified and dispersed the risks. Although this dispersion of risk was 

expected to limit the impact of regional downturns, it helped to transmit 

the downturn in housing prices across the financial system and the 

nation. Experts have also noted that the task of effectively monitoring and 

mitigating systemic risk is both vast and procedurally complex. 

Additionally, actions to preemptively mitigate threats may appear 

unnecessary or too costly at the time they are proposed or taken. 

Although achieving FSOC’s key missions is inherently challenging, failure 

to achieve them will continue to leave the financial system vulnerable to 

large or multiple shocks that could result in the large losses in asset 

values, higher unemployment, and slower economic growth associated 

with previous financial crises.

Although the Dodd-Frank Act created FSOC to provide for a more 

comprehensive view of threats to U.S. financial stability, it left most of the 

fragmented and complex arrangement of independent Federal and State 

regulators that existed prior to the Dodd-Frank Act in place and generally 

preserved their statutory responsibilities. As a result, FSOC’s 

effectiveness hinges to a large extent on collaboration among its many 

members, almost all of whom come from state and federal agencies with 

their own specific statutory missions. In testifying on the coordination of 

Dodd-Frank rulemakings assigned to specific FSOC members, before the 

U.S. House Financial Services Committee in October 2011, the 

chairperson of FSOC recognized this challenge. He noted that the 

coordination challenge in the rulemaking process was hard because the 

Dodd-Frank Act left in place a financial system with a complicated set of 

independent agencies with overlapping jurisdictions and different 

responsibilities. However, the Chairperson also noted that certain 

FSOC and OFR Face 

Challenges Achieving 

Their Missions 
 

Page 9 GAO-12-886 Financial Stability Entities

agencies were working much more closely together than they did before 

the creation of FSOC. In our prior work, the federal financial regulators 

also emphasized the importance of maintaining their independence while 

serving as members of FSOC. For example, several FSOC member 

agencies noted in our prior work on Dodd-Frank rulemakings that any 

effort to coordinate rulemakings assigned to specific agencies through 

FSOC would need to be balanced against the statutory requirements of 

the independent agencies involved.14 In addition, the Chairperson has 

similarly noted that he does not have the authority to force agencies to 

coordinate, and neither he, nor FSOC as a whole, can force agencies to 

adopt compatible policies and procedures. FSOC members’ staffs and 

staff at member agencies also noted that differences in policies and 

procedures are designed to address the differences in the entities they 

regulate. Regulators have also pointed to their differing statutory 

requirements to explain why they have differing views on policy issues. 

During the Basel II deliberations, for instance, U.S. bank regulators—the 

Federal Deposit Insurance Corporation (FDIC), Federal Reserve, and 

OCC—each had a different view of various aspects of those 

requirements.15

OFR also faces the challenge of trying to build a world-class research 

organization from the ground up while meeting shorter term goals and 

The regulators traced their differences back to their 

specific statutory responsibilities. Furthermore, although the United 

Kingdom (UK) and the European Union (EU) have established or are in 

the process of establishing councils to oversee systemic risk, in the UK 

and the EU the central bank has more members or more votes than other 

entities on these councils. In contrast, in the United States, the central 

bank—the Federal Reserve—has one member on FSOC and one vote 

among the 10 voting members. FSOC policy staff and staff at member 

agencies noted that the diverse perspectives of FSOC members enrich 

FSOC deliberations.

 

14GAO, Dodd-Frank Act Regulations: Implementation Could Benefit from Additional 

Analyses and Coordination, GAO-12-151 (Washington, D.C.: Nov. 10, 2011). 

15Basel II is a risk-based capital framework for banks based on an international accord. 

For more information on Basel II adoption in the United States, see GAO, Risk-Based 

Capital: Bank Regulators Need to Improve Transparency and Overcome Impediments to 

Finalizing the Proposed Basel II Framework, GAO-07-253 (Washington, D.C.: Feb. 15, 

2007) and Risk-Based Capital: New Basel II Rules Reduced Certain Competitive 

Concerns, but Bank Regulators Should Address Remaining Uncertainties, GAO-08-953

(Washington, D.C.: Sept. 12, 2008).
 

Page 10 GAO-12-886 Financial Stability Entities

responsibilities. Recognizing these difficulties, the Dodd-Frank Act 

required that OFR submit annual human resource planning reports to 

Congress that cover the new entity’s plans for recruitment and retention, 

training and workforce development, and workforce flexibility. The 

September 2011 plan stated that a key feature of the recruitment 

message was to highlight OFR’s ability to engage top academic and 

industry professionals through several unique opportunities. These 

included the ability to work in innovative research networks and with 

unique data sets, as well as the historic opportunity to be involved from 

the beginning in a new institution with broad, challenging goals. OFR 

recognizes the challenge of attracting and retaining highly trained staff, 

who often have other employment alternatives. When asked about 

challenges they face, OFR officials noted that one challenge to starting a 

research organization that is an unknown entity derives, in part, from 

some prospective employees wanting to see which other researchers are 

in place before agreeing to an employment offer. OFR officials told us that 

the organization is making steady progress toward reaching a point at 

which it will have an established core of staff and greater name 

recognition that will lessen this challenge. Those researchers who 

supported the creation of OFR have suggested that it will take many 

years for the new entity to provide the insights that will ultimately be 

expected of it. These researchers have also noted that the absence of a 

director for the organization has slowed this process. At the same time 

that OFR faces the long-term challenges of building a world-class 

research organization, it also faces the challenge of balancing this longerterm goal with the need to meet shorter-term goals such as providing 

ongoing support to FSOC and standardizing the types and format of data 

collected and reported by the financial regulatory agencies.16

 

16OFR’s shorter-term activities will be discussed later in this report. 
 

Page 11 GAO-12-886 Financial Stability Entities

FSOC and OFR have taken steps toward meeting the challenges they 

face, including setting up their management structures, communicating 

their mission and goals, and hiring staff. However, both entities could 

enhance their accountability mechanisms and level of transparency. 

FSOC and OFR have also taken steps to build mechanisms to identify 

potential threats to financial stability, but additional actions would 

strengthen this key mission of both entities. Additionally, while FSOC and 

OFR have developed web pages on Treasury’s website and taken other 

steps to provide information to the public, these efforts have limitations 

and do not always fully inform Congress or the public about their activities 

and progress. Without taking additional steps to improve accountability 

and transparency, FSOC and OFR are missing the opportunity to 

demonstrate their progress in carrying out their missions.

As we have reported in the past, agencies can manage or mitigate many 

of the challenges of setting up new organizations by developing strong 

management structures and control mechanisms.17 The literature on 

control mechanisms and government performance suggests that certain 

mechanisms, such as setting out goals and linking staffing, activities, and 

budgets to them, are key even when new agencies are being formed.18

 

17GAO, Millennium Challenge Corporation: Progress Made on Key Challenges in First 

Year of Operations,

Such control mechanisms provide management, staff, stakeholders, and 

the public with a good understanding of the organization’s mission and

goals, the steps it intends to take to carry out those goals, and an ongoing 

level of accountability. Agencies also need to establish measures to 

GAO-05-625T (Washington, D.C.: Apr. 27, 2005) and Troubled Asset 

Relief Program: Additional Actions Needed to Better Ensure Integrity, Accountability, and 

Transparency, GAO-09-161 (Washington, D.C.: Dec. 2, 2008).

18See GAO, Internal Control: Standards for Internal Control in the Federal Government, 

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

Standards: Internal Control Management and Evaluation Tool, GAO-01-1008G

(Washington, D.C.: August 2001). These standards reflect updates in private sector 

internal control guidance, including the issuance of Internal Control—Integrated 

Framework by the Committee of Sponsoring Organizations of the Treadway Commission 

(COSO). Also see COSO, Enterprise Risk Management—Integrated Framework 

(September 2004). For the importance of objectives and performance measures in 

determining accountability and efficiency, see, for example, GAO, Results-Oriented 

Government: GPRA Has Established a Solid Foundation for Achieving Greater Results, 

GAO-04-38 (Washington, D.C.: Mar. 10, 2004) and Government Performance: GPRA 

Modernization Act Provides Opportunities to Help Address Fiscal, Performance, and 

Management Challenges, GAO-11-466T (Washington, D.C.: Mar. 16, 2011).

FSOC’s and OFR’s 

Management 

Structures and 

Mechanisms Could Be 

Enhanced to Provide 

Greater 

Accountability and 

Transparency 

FSOC and OFR Have Set 

Up Initial Structures and 

Hired Staff, but Some Key 

Leadership Positions 

Remain Vacant at OFR
 

Page 12 GAO-12-886 Financial Stability Entities

gauge their performance so that they can change strategies that are 

deficient in a timely manner. Organizations must also maintain an 

appropriate level of transparency. Because certain agencies rely on 

confidential information, such as that obtained during regulatory 

supervision, an appropriate level of transparency recognizes the need to 

maintain confidentiality and information security. In addition, agencies 

must balance the need for transparency with the need for those involved 

in deliberations to be able to express their views.

FSOC has begun setting up its management structures. It has 

established a dedicated policy office within Treasury’s Office of Domestic 

Finance, led by a Deputy Assistant Secretary, which functions as the 

FSOC Secretariat. Among other duties, the policy office works with staff 

of other FSOC members to support FSOC in its day-to-day operations by 

helping to draft rules, studies, and reports and prepare and circulate 

relevant materials to agency members prior to council meetings. The 

office also serves as a mechanism to bring issues to the council quickly. 

As of June 2012, there were 25 staff members in the FSOC policy office.

FSOC has established seven standing committees generally composed 

of staff of its members and member agencies to carry out the business of 

the council including developing the information the members need to 

make decisions effectively. The Deputies Committee, which meets every 

2 weeks and consists of senior officials designated by members, is 

responsible for coordinating and overseeing the work of the staff 

committees. The deputies may resolve issues that arise in the other 

committees and determine the information that needs to be passed on to 

the FSOC members for discussion. Some other committees include the 

Systemic Risk Committee that analyzes emerging threats to financial 

stability, designations committees that support FSOC in evaluating FMUs 

and nonbank financial companies for certain additional oversight, and the

Data Committee that supports OFR’s data collection efforts.19

 

19For a detailed description of all the committees, see appendix II. 

FSOC 

policy staff stated that all members and member agencies were invited to 

have staff participate on any committee and, in some cases, FSOC 

members attend committee meetings as well. They also noted that ad hoc 

staff groups were formed periodically to work on issues that might not fit 

within the purview of a standing committee. For example, an ad hoc 
 

Page 13 GAO-12-886 Financial Stability Entities

group helped draft FSOC’s 2011 Annual Report, and an ongoing legal 

working group holds conference calls as needed to address legal issues.

OFR has also taken steps to set up needed management structures. As 

shown in figure 2, OFR has developed an organizational structure that is 

built around a Data Center and Research and Analysis Center—the two 

programmatic units established by the Dodd-Frank Act. OFR has adopted 

certain hiring policies required under the Dodd-Frank Act, including 

special salary schedules that are higher than the General Schedule, and 

used Treasury’s existing authority from the Office of Personnel 

Management for Schedule A excepted hiring.20

 

20These authorities describe special jobs and situations for which it is impractical to use 

standard qualification requirements and to rate applicants using traditional competitive 

procedures. Under the Dodd-Frank Act, OFR must seek to maintain comparability of 

compensation and benefits with other Financial Institutions Reform, Recovery, and 

Enforcement Act agencies. Accordingly, OFR has adopted the pay and compensation 

system available at OCC to meet the requirement of the act.

In testimony delivered to 

the House Financial Services Subcommittee on Oversight and 

Investigations, in April 2012, the Chief Operating Officer described plans 

to build up to a staffing level of from 275 to 300 staff in the next 2 to 3 

years. OFR officials noted that they had relied on a variety of tools to 

solicit applicants, including letters to academic institutions. OFR’s 

recruitment message has highlighted the opportunity to work on unique 

data sets and the historic opportunity to build a new institution that would 

promote financial stability. As of August 15, 2012 OFR had 112 

employees. About three-quarters of these employees were direct hires 

(including 22 reimbursable staff from other Treasury departments) with 

the other quarter a combination of external detailees and student interns. 

Although this level is below the target employment level in OFR’s budget, 

it represents marked progress from the second quarter of 2011, when 

OFR had seven employees and relied mostly on nonpermanent staff.
 

Page 14 GAO-12-886 Financial Stability Entities

Figure 2: OFR Organizational Chart, as of July 2012

a

The Deputy Director of the Data Center is also serving as the Acting Chief Business Officer.

b

The Chief Counsel reports directly to Treasury’s Office of General Counsel.

As it is for any agency, having effective leadership is critical to hiring 

qualified staff and providing effective governance. OFR has filled five of 

its eight top leadership positions, but two of the most important positions 

are not permanently filled: the OFR director and the deputy director of the 

Research and Analysis Center. A former Treasury official with knowledge 

of the search process for the director position said that it was difficult to 

attract a qualified candidate to head the agency for a 6-year term. After 

17 months, the President put forth a nominee to head OFR in December 

2011 who had been serving as the Counselor to the Secretary since April 

2011 and continues to serve in that position. As of July 2012, the 

nominee is awaiting full Senate confirmation.21

 

21When OFR has a confirmed director, it will have some autonomy. For example, 

according to the Dodd-Frank Act, the director’s congressional testimony is not to be 

subject to prior approval by any agency including Treasury or any other FSOC member. 

Since OFR has also not 

filled the deputy director position at the Research and Analysis Center, 

the Chief of Analytical Strategy has assumed responsibility for standing 
 

Page 15 GAO-12-886 Financial Stability Entities

up the Research and Analysis Center, including overseeing the hiring 

process, determining data needs, and defining the center’s objectives and 

strategy. In June, OFR filled the Data Center Deputy Director position by 

promoting the Chief Business Officer to this position. The new Data 

Center Deputy Director will continue to serve as the Acting Chief 

Business Officer until this position is filled. In addition to these vacancies, 

a number of lower-level management vacancies remain, including 

positions at the Research and Analysis Center. For example, none of the 

assistant director positions under the Deputy Director of Research and 

Analysis have been filled. In addition, two of five assistant director 

positions under the Chief Technology Officer are open. However, OFR is 

not actively looking to fill one of the assistant director positions until the 

office reaches a mature state and has the need for this additional 

position.

FSOC has implemented policies such as bylaws, a transparency policy, 

and a consultation framework, and members have signed a memorandum 

of understanding (MOU) on sharing confidential information to govern 

FSOC activities and promote accountability and transparency. OFR has 

also adopted policies and procedures for its operations.

• FSOC’s bylaws describe the duties of the Chairperson, members of 

the council, and staff; provide the governance structure for council 

meetings; and describe some policies for confidentiality and access to 

information, among other things. The bylaws also allow the 

Chairperson to appoint, with council approval, an Executive Director 

and Legal Counsel and to delegate some responsibilities to the 

Executive Director. As of July 2012, no one had been appointed to 

these positions. Instead, Treasury staff perform duties associated with 

these positions, such as providing ethics information to FSOC

members.

• The transparency policy commits FSOC to holding at least two open 

meetings per year but also establishes reasons why other meetings 

might be closed. For example, meetings may be closed during 

discussions of supervisory or other market-sensitive information or if 

an open meeting would result in the disclosure of information 

contained in investigation, examination, operating, or condition 

reports; or would necessarily and significantly compromise the 

mission or purposes of FSOC if it were disclosed. The policy also 

states that FSOC will release minutes to the public after the meetings. 

FSOC and OFR Have 

Adopted Certain Policies 

but Could Strengthen 

Mechanisms to Fully 

Ensure Accountability and 

Transparency
 

Page 16 GAO-12-886 Financial Stability Entities

• FSOC’s framework for consultation applies to regulations or actions 

required by the Dodd-Frank Act that must be completed in 

consultation with FSOC. For example, under the act, the Securities 

and Exchange Commission (SEC) must consult with FSOC in 

determining what information is to be collected from certain 

investment advisers to private funds relating to the assessment of 

systemic risk. The framework provides a timeline for holding initial 

meetings, circulating and commenting on staff recommendations, and 

briefing key policy staff of interested FSOC members on those 

recommendations. 

• FSOC members also signed an MOU to help ensure confidentiality of 

nonpublic information. The MOU requires that FSOC members not 

share this information with anyone outside their member agencies or 

otherwise specified support staff. Treasury officials and FSOC staff 

said that the MOU is necessary because it enables council members 

to share nonpublic information within the council and provides 

assurance to covered staff that they will not incur penalties for sharing 

information consistent with the MOU’s terms. They noted, for 

example, that sharing certain supervisory information without such an 

agreement could carry severe penalties. In June 2012, CIGFO 

released a report on FSOC’s controls over nonpublic information.22

CIGFO found that to date FSOC had shared limited nonpublic 

information, but this situation will change as OFR builds its capacity. 

CIGFO also found differences in the way FSOC member agencies 

marked and handled nonpublic information and noted that not 

addressing these differences could pose risks to the senders and 

receivers of such information. The FSOC Data Committee has 

undertaken a project to address these issues.

• OFR has adopted policies and procedures for its operations, including 

those for data security, human resources, budget execution, and 

procurement. Because data operations are an important feature of 

OFR’s operations, OFR officials said that they had spent significant 

time on data security architecture, looking at issues of confidentiality, 

user access, and cyber threats such as hacking. OFR has adopted 

Treasury procedures for ensuring data security and is expanding its 

security controls as necessary for OFR-specific systems and data, as 

 

22Council of Inspectors General on Financial Oversight, Audit of the Financial Stability 

Oversight Council’s Controls over Non-public Information (Washington, D.C.: June 2012).
 

Page 17 GAO-12-886 Financial Stability Entities

well as for information sharing across FSOC member agencies. To 

further ensure confidentiality, they have also adopted postemployment 

restrictions, as required by the Dodd-Frank Act, stating that OFR 

employees generally may not be employed by or provide advice or 

consulting services to financial companies for one year after if they 

have had access to certain confidential information.

In addition, FSOC has some planning under way and OFR has taken

some actions and planned others that are consistent with legal 

requirements or leading practices for new organizations relative to 

strategic planning and performance management. In our prior work, we 

have identified three key steps for successful results-oriented 

organizations—(1) defining clear missions and desired outcomes; (2) 

measuring performance to gauge progress; and (3) using performance as 

a basis for decision making.23 These practices are consistent with the 

Government Performance and Results Act of 1993, as amended (GPRA), 

which requires agencies to periodically produce strategic plans, annual 

performance plans, and performance updates.24 FSOC, which is subject 

to GPRA, is in the early planning stages of how to satisfy its requirements 

and may, given its relatively small monetary outlays, request an 

exemption from certain GPRA requirements from the Office of 

Management and Budget.25

OFR, which is not independently subject to GPRA, also received limited 

discussion in Treasury’s 2012-2015 strategic plan. Specifically, the plan 

In the interim, Treasury’s strategic plan for 

fiscal year 2012-2015 describes FSOC and the Treasury Secretary’s role 

as FSOC chairperson, but it does not include information on FSOC’s 

goals or how it will measure FSOC’s progress in achieving them.

 

23See GAO, Executive Guide: Effectively Implementing the Government Performance and 

Results Act, GAO/GGD-96-118 (Washington, D.C.: June 1996) and Results Oriented 

Cultures: Implementation Steps to Assist Mergers and Organizational Transformations, 

GAO-03-669 (Washington, D.C.: July 2, 2003). 

24Pub. L. No. 103-62, 107 Stat. 286 (1993), and as amended by the GPRA Modernization 

Act of 2010, Pub. L. No. 111-352, 124 Stat. 3866 (2011). Performance plans or budgets 

are intended to provide the direct linkage between an agency’s longer-term goals (as 

defined in the strategic plan) and what its managers and staff are doing on a day-to-day 

basis and include how resources will be used to accomplish those goals. Performance 

updates provide feedback to managers, policymakers, and the public on what was actually 

accomplished for the resources expended. 

25Agencies expending less than $20 million annually may request such an exemption. 

See 31 U.S.C. § 1117. 
 

Page 18 GAO-12-886 Financial Stability Entities

notes only that Treasury’s Office of Domestic Finance supports OFR and 

that OFR was created by the Dodd-Frank Act. Similar to other entities 

within the Treasury such as the Bureau of the Public Debt and the 

Internal Revenue Service, and consistent with leading practices for new 

organizations, OFR is undertaking an independent strategic planning and 

performance management effort. OFR issued a strategic framework in 

March 2012 to cover fiscal years 2012-2014. In the strategic framework 

OFR lists five strategic goals, including supporting FSOC through the 

secure provision of high-quality financial data and by conducting the 

analyses needed to monitor threats to financial stability; developing and 

promoting data-related standards and best practices; and providing the 

public with key data and analyses while protecting sensitive information. 

The framework also highlights a number of objectives under those goals 

and lays out implementation priorities for the first year covered by the 

document, fiscal year 2012. The framework also notes the importance of 

transparency and that OFR is subject to oversight from the Treasury 

Office of the Inspector General (OIG) and GAO, which have both 

exercised that authority during OFR’s first two years, and that the DoddFrank Act requires that the OFR Director testify before Congress annually 

on OFR’s activities. However, OFR acknowledges within its framework 

document, that it does not yet have certain other key elements of 

performance management in place including linking programmatic, 

human resources, and budgetary decision making to its strategic goals 

and developing a performance measurement system. The framework 

identifies establishing these elements of a performance management 

system among its fiscal 2012 priorities. OFR officials told us that they 

have begun to link its budget and human resources to strategic goals and 

that the human resources plan to be submitted to Congress in September 

2012 and the fiscal year 2014 budget submission to be issued in 2013 will 

reflect these linkages.26

 

26OFR’s budget submission will be included as part of the President’s fiscal year 2014 

budget submission that is expected to be released in February 2013.

They added that at the time they issued the 

framework, they were not in a position to include performance measures, 

as the agency was not sufficiently established. However, they plan to 

include performance measures in their fiscal year 2014 budget 

submission. In June 2012, the Treasury OIG issued a report on the 

progress OFR had made in developing an implementation plan that lays 

out how it will stand up all of its operations and also noted the need to 
 

Page 19 GAO-12-886 Financial Stability Entities

develop performance measures.27

In the absence of a strategic plan, FSOC’s annual reports serve as a key 

accountability document. An FSOC policy official said that at this time he 

views FSOC’s annual reports as its strategic planning document. FSOC 

staff noted that its annual reports provide Congress and the public with a 

report on FSOC’s activities, its views on potential emerging threats to 

U.S. financial stability, and recommendations to enhance the integrity, 

efficiency, competitiveness, and stability of U.S. financial markets. They 

note further that the council’s chairperson is required to testify annually 

before Congress on the report, which serves as an accountability 

mechanism. When discussing accountability, FSOC members have noted 

the importance of the statement contained in the front of the reports (and 

signed by each member) that FSOC is taking reasonable steps to ensure 

financial stability and mitigate systemic risk.

Without developing and publishing 

such performance measures, neither the agency nor the public can 

determine whether OFR’s expenditures and activities are most effectively 

aimed at accomplishing its mission.

28

 

27Department of the Treasury, Office of the Inspector General, Dodd Frank Act: Treasury 

Has Made Progress to Stand-up the Office of Financial Research (Washington, D.C.: June 

27, 2012). The report noted that OFR took longer than expected to finalize a 

comprehensive implementation plan, which the OIG defined as including OFR’s strategic 

framework, strategic roadmap, other planning documents and individual project plans. The 

report stated that progress going forward would depend on its ability to execute its plan 

and recommended that OFR’s Chief Operating Officer monitor progress in carrying out the 

activities in the comprehensive implementation plan and take timely action to address any 

slippages or otherwise make adjustments to achieve the objectives and keep to the time 

frames in the plan. 

FSOC members have also 

acknowledged the need to follow up on recommendations, and FSOC 

staff noted that recommendations will be monitored by FSOC as a whole. 

However, the annual reports do not effectively communicate how FSOC 

will be held accountable for the actions identified. For example, the 

annual reports list multiple recommendations that FSOC plans to monitor 

over time, but do not specify how they will conduct that monitoring. For 

example, who is going to monitor or implement the recommendations and 

the recommendations themselves is often vague or unclear, and no time 

28The Dodd-Frank Act requires individual members to submit a signed statement to 

Congress to accompany many FSOC reports saying whether they believe that FSOC, the 

government, and the private sector are taking all reasonable steps to ensure financial 

stability and mitigate systemic risk that would negatively affect the economy. If they did not 

believe this the statement would need to indicate what actions the member believes 

should be taken. 12 U.S.C. § 5322(b). 
 

Page 20 GAO-12-886 Financial Stability Entities

frames are specified. More specifically, in the 2011 Annual Report some 

recommendations identified relevant parties only as “market participants” 

or “regulators” but did not consistently identify the targets of the 

recommendation or designate parties responsible for monitoring or 

implementing them. Another recommendation only discusses Dodd-Frank 

Act reforms, while several others express support for certain aspects of 

international coordination on financial reforms. In the 2012 Annual Report, 

FSOC adds some specificity to these recommendations, such as 

recommending an expeditious implementation of the Dodd-Frank Act. In 

the 2012 Annual Report, FSOC also more clearly identifies 

recommendations starting each one with “the council recommends,” but it 

still does not consistently designate an FSOC member or members to 

monitor or implement the recommendations nor does it establish time 

frames for certain actions such as reporting to the council on the status of 

the recommendation. Treasury officials noted that the Dodd-Frank Act did 

not give the chairperson or council authority to require that independent 

regulators take action or impose time frames on them. However, they 

noted that some recommendations in the 2012 Annual Report were made 

to specific agencies and put greater stress on more immediate action 

than others. For example, the report emphasized the importance of a 

recommendation to SEC to take action to address money market fund 

risks by saying that wholesale short-term funding markets are a critical 

component of a well-functioning financial system, and FSOC continues to 

be focused on structural vulnerabilities in money market funds that could 

disrupt these markets. Enhancing FSOC’s accountability could lead to 

more effective oversight and public confidence in financial institutions and 

markets.

In addition, while FSOC releases minutes from its meetings, as required 

by its bylaws, it does not keep detailed records of deliberations or 

discussions that take place at these meetings or at the committee level. 

While no specific level of detail is required for FSOC minutes, the limited 

documentation of their discussions makes it difficult to assess FSOC’s 

performance. Another deliberative body, the Federal Reserve’s Federal 

Open Market Committee, keeps transcripts of its meetings and voluntarily 

releases these transcripts to the public after 5 years. Releasing the 

transcripts after a period of time should allow the members of the 

committee to talk freely and provides documentation that can be used to 

assess the entity’s performance and monitor their decision making 

process.
 

Page 21 GAO-12-886 Financial Stability Entities

FSOC has taken steps to meet its statutory responsibilities related to 

identifying risks and potential emerging threats to U.S. financial stability, 

but has not yet developed comprehensive and systematic mechanisms to 

realize these goals. These steps include setting up the Systemic Risk 

Committee that is responsible for systemic risk monitoring and plays a 

key role in reviewing sources of systemic risk. Potential threats to 

financial stability are also discussed at FSOC meetings; for example, 

FSOC officials noted that a teleconference was convened to discuss MF 

Global. The Systemic Risk Committee generally meets every 2 weeks 

and is co-chaired by the Commodity Futures and Trading Commission 

(CFTC), FDIC, the Federal Reserve, and SEC. The committee is 

operating under draft procedures in which member agency staff suggest 

risks or threats that, in their view, may benefit from interagency 

coordination.29 In December 2011, FSOC members’ staff provided 40 

suggestions, which FSOC policy staff grouped into categories for 

discussions at the committee’s monthly meetings. According to FSOC 

policy staff, if there is agreement that an issue would warrant further 

examination, an agency is assigned to develop the issue, including 

identifying vulnerabilities in the financial system. When the committee 

determines the issue is sufficiently developed, it presents the issue to the 

Deputies Committee. Sending some issues to the Deputies Committee 

sooner than others does not imply that the committee attaches greater 

importance to the issue but only that enough analysis has been 

completed to allow it to move forward. According to the draft procedures, 

if issues are elevated beyond the Deputies Committee to FSOC 

members, agencies may respond with a variety of actions, including 

enhanced monitoring, additional analysis, the development of potential 

policy responses, or the implementation of a particular policy response.30

OFR participates in the Systemic Risk Committee and is building capacity 

to monitor the financial system for threats to financial stability. OFR has 

developed the Financial Stability Monitor, a collection of metrics and 

indicators related to financial stability that is to be continuously updated, 

according to OFR and Treasury officials. According to these officials, 

 

29FSOC officials noted that the procedures were marked draft because this is a new 

process and the committee expected to change the procedures based on its initial 

experience. 

30In some circumstances, such as rapidly evolving risks, the discussion can be fast 

tracked to FSOC members for a discussion of potential responses.

FSOC and OFR Have 

Taken Steps to Build 

Mechanisms to Identify 

Potential Threats to 

Financial Stability, but 

More Work Is Needed to 

Realize This Goal
 

Page 22 GAO-12-886 Financial Stability Entities

OFR began sharing the Financial Stability Monitor with the Systemic Risk 

Committee and FSOC member agency staff in February 2012. OFR is 

assessing options for analyzing risks to financial stability and produced a 

working paper in collaboration with outside researchers, published in 

January 2012, to survey existing approaches.31 In addition, OFR and 

FSOC sponsored a conference in December 2011 to discuss data and 

technology issues and analytical approaches for assessing threats to 

financial stability.32

Although they are building some mechanisms to identify risks to the U.S. 

financial system, FSOC and OFR have not yet developed and 

implemented systematic and comprehensive mechanisms for identifying 

and monitoring these risks. A systematic approach would incorporate 

both rigorous methods—such as quantitative indicators and models—to 

assess vulnerabilities of the financial sector, as well as qualitative inputs 

to account for any shortcomings of the quantitative models or gaps in 

available data. A comprehensive approach would better ensure that all 

relevant aspects of the financial system are considered and analyzed. 

The Systemic Risk Committee procedures may facilitate analysis of risks 

that could benefit from interagency discussions and responses, but these 

procedures may not help to identify new risks or threats that FSOC 

member agencies have not already identified on their own. Without a 

more systematic approach and comprehensive information, FSOC 

member agencies, on their own, may not be well positioned to judge 

which potential threats will benefit from interagency discussions. FSOC 

and OFR could improve their efforts to identify risks and threats by 

collecting and sharing a common set of financial indicators.33

 

31Dimitrios Bisias, Mark Flood, Andrew W. Lo, and Stavros Valavanis, A Survey of 

Systemic Risk Analytics, Office of Financial Research Working Paper #0001 (Washington, 

D.C.: Jan. 15, 2012). 

Systematic

collection, analysis, and sharing of financial indicators of key risk factors 

such as leverage, liquidity, concentrations, underwriting standards, 

collateral quality, and delinquencies should provide insight into 

vulnerabilities affecting particular types of financial intermediaries or 

32The Macroprudential Toolkit: Measurement and Analysis. Conference held in 

Washington, DC: December 1-2, 2011. 

33Such a data-sharing exercise is akin to what the International Monetary Fund proposes 

with its Financial Soundness Indicators. See International Monetary Fund, Financial 

Soundness Indicators: Compilation Guide (Washington, D.C.: March 2006).
 

Page 23 GAO-12-886 Financial Stability Entities

reveal patterns occurring across the financial system. OFR, through a 

mechanism such as the Financial Stability Monitor, could play a role in 

collecting, analyzing, and reporting on these indicators. A senior OFR 

official told us that this was the ultimate intent of the Financial Stability 

Monitor. A sample of the Financial Stability Monitor that we reviewed 

included, among other topics, some indicators of leverage and liquidity 

that were based on data from the federal banking agencies and 

purchased databases.

Many analytical tools have been developed by researchers or are in use 

by international bodies to assess the risk of a financial crisis or identify 

vulnerabilities in the financial system. Some of these tools—such as early 

warning models—can be useful to assess the overall level of risk in the 

financial system, while others, such as system-wide stress testing, could 

be helpful in identifying new vulnerabilities and interconnections (see fig. 

3). In general, these tools are methods of integrating large volumes of 

financial information to generate specific insights about financial stability. 

Experts we spoke with were generally supportive of developing and using 

such tools for monitoring risks to financial stability and also emphasized 

the importance of using multiple tools. These tools, which all have useful 

features as well as shortcomings, may complement each other, and 

exploring a variety of tools will provide insight into which ones will be the 

most effective. According to FSOC policy staff, FSOC has not formally 

considered whether to develop early warning models or conduct systemwide stress tests. OFR staff said they are evaluating a range of metrics 

and methods that had been proposed for measuring and analyzing 

financial markets and systems and are in the early stages of developing 

network maps and other tools to assess financial stability. OFR evaluated 

11 measures against a series of crises over time and reported on some of 

these efforts in its 2012 Annual Report.34

 

34Office of Financial Research, 2012 Annual Report (Washington, D.C.: July 2012). 

In addition, OFR has a statutory 

responsibility to report on stress testing, and OFR officials told us that 

they interpreted that responsibility as contributing to the development and 

evaluation of quantitative tools that are used in stress tests, improving the 

data used in stress tests, and helping to advance the state-of-the-art in 

stress test methodologies. As such, OFR’s survey of systemic risk 

approaches described several stress testing models and the OFR Annual 

Report noted that methodologies will need to advance to expose 
 

Page 24 GAO-12-886 Financial Stability Entities

vulnerabilities in the financial system as a whole. OFR would support 

FSOC in evaluating system-wide stress tests, according to OFR officials.
 

Page 25 GAO-12-886 Financial Stability Entities

Figure 3: Selected Tools for Monitoring Risks to Financial Stability
 

Page 26 GAO-12-886 Financial Stability Entities

a

See, for example, Marco Lo Duca and Tuomas Peltonen, Macro-Financial Vulnerabilities and Future 

Financial Stress: Assessing Systemic Risks and Predicting Systemic Events, ECB Working Paper 

1311 (Frankfurt, Germany: March 2011); E. Philip Davis and Dilruba Karim, “Could Early Warning 

Systems Have Helped to Predict the Sub-Prime Crisis?” National Institute Economic Review 206 

(October 2008); International Monetary Fund, The IMF-FSB Early Warning Exercise: Design and 

Methodological Toolkit (Washington, D.C.: September 2010). See also Andrew K. Rose and Mark M. 

Spiegel, Cross-Country Causes and Consequences of the 2008 Crisis: Early Warning, NBER 

Working Paper 1537 (Cambridge, Ma.: September 2009) for some concerns about early warning 

approaches.

b

See Ray Barrell, E. Philip Davis, Dilruba Karim, and Iana Liadze, “Bank Regulation, Property Prices 

and Early Warning Systems for Banking Crises in OECD Countries,” Journal of Banking and Finance

34 (2010); Claudio Borio and Mathias Drehmann, “Assessing the Risk of Banking Crises - Revisited,” 

BIS Quarterly Review (March 2009).

c

See Peter Sarlin and Tuomas Peltonen, Mapping the State of Financial Stability, ECB Working 

Paper 1382 (Frankfurt: September 2011); Peter Dattels and others, Can You Map Global Financial 

Stability?, IMF Working Paper WP/10/145 (Washington, D.C.: June 2010).

d

See Pew Financial Reform Project, Standards for Financial Stress Tests (Washington, D.C.: June 

2011); Basel Committee on Banking Supervision, Principles for Sound Stress Testing Practices and 

Supervision (Basel, Switzerland: May 2009); Institute of International Finance, Macroprudential 

Oversight: An Industry Perspective (Washington, D.C.: July 2011. The Bank of England also recently 

completed work on a model featuring interconnections in the banking industry to examine the 

potential impact of various stress scenarios on the UK financial system. See David Aikman and 

others, Funding Liquidity Risk in a Quantitative Model of Systemic Stability, Bank of England Working 

Paper 372 (London: June 2009).

Although FSOC and OFR have adopted communication methods to 

provide information to the public and Congress on their activities, some of 

their methods could be strengthened. For example, both entities have 

web pages on Treasury’s website. FSOC’s web pages include minutes of 

the council’s meetings, annual reports, frequently-asked-questions, and 

information on FSOC rulemakings. OFR has also posted key documents 

on its web pages, including its annual report, strategic framework, and 

updates on recent developments, such as the status of the legal entity 

identifier.35

 

35The legal entity identifier is a new a universal standard for identifying all parties to 

financial contracts. This will be discussed in more detail later in the report.

OFR’s first annual report discusses its activities and agenda 

for the next year, and its approach to researching financial stability as well 

as current threats. The annual report also covers other topics including 

data gaps in the areas of leverage, liquidity, and interconnectedness as 

well as the benefits of data standards. Treasury officials also provided us 

with examples of emails they have sent to congressional committees on 

key FSOC or OFR products or actions, such as the designation of 

nonbank financial companies, and described the wide range of 

correspondence they respond to on congressional inquiries involving both 

entities.

Limited Public Information 

Hinders Understanding of 

FSOC’s and OFR’s 

Activities and Progress
 

Page 27 GAO-12-886 Financial Stability Entities

FSOC releases the minutes of its meetings. However, the minutes 

describe general agenda items for the meetings and information on the 

presenters for each agenda item and lack additional detail even when the 

information being discussed is not likely to be market sensitive or limit the 

quality of deliberations. For example, the meeting minutes for October 11, 

2011, show that several presentations were given during an executive 

session, including one on money market reform updates. The minutes 

provide the names of those who gave the money market presentation and 

note that updates were provided on actions taken since the last 

presentation on the topic. However, the minutes lack any content of the 

actual presentation or discussion.36

“Money Market Fund Reform Update

Specifically, the minutes say the 

following.

“The Chairperson then turned to the agenda item regarding an update on money 

market fund reform and called on Robert Plaze, Associate Director, Division of 

Investment Management, SEC, Matthew Eichner, Associate Director, Division of 

Research and Statistics, Federal Reserve, Matthew Rutherford, Deputy Assistant 

Secretary for Federal Finance, Treasury, to make the presentation. The 

individuals listed above provided the presentation which included a review of the 

actions taken since the last presentation regarding money market fund reform to 

the Council, the reform options under consideration, and next steps.

The members of the Council asked questions about the presentation.” 

In addition, in our review of meeting minutes for meetings held from 

October 2010 through December 2011, we found that minutes from more 

recent meetings generally have less detail than those from earlier ones. 

As a result, the public receives little information about FSOC’s activities 

and deliberations, which limits the public’s understanding of its activities. 

More recently, however, FSOC provided additional transparency on a key 

decision—its 2012 Annual Report provides extensive information on the 

designation of FMUs as systemically important, including the names of 

the designated entities and a discussion of the reasons for their 

designation.

 

36FSOC, Minutes of the Financial Stability Council: held October 11, 2011, accessed Jan. 

17, 2012, http://www.treasury.gov/initiatives/fsoc/Pages/council-meeting-minutes.aspx.
 

Page 28 GAO-12-886 Financial Stability Entities

FSOC policy officials acknowledged that the issue of transparency is 

challenging. They recognized the need for transparency but also noted 

that certain information is protected from disclosure under various 

statutes and cannot be released. FSOC staff also noted the need to 

balance the desire for transparency with the need to provide an 

environment that allows for open discussion and deliberation of issues 

and policy options. As we have previously reported, transparency is a key 

feature of accountability even when there is a need to safeguard certain 

sensitive information to protect the marketplace.37

Additionally, neither FSOC nor OFR has taken full advantage of modern 

communication tools to communicate information about their activities or 

progress. While using a search engine, such as Google, identifies web 

pages for both entities on Treasury’s website, the pages are not easy to 

locate from Treasury’s homepage nor are the sites user friendly. For 

example, the FSOC and OFR web pages are in a section of Treasury’s 

website called Initiatives and are further embedded under a section titled 

Wall Street Reform. While FSOC does post the dates and times of its 

meetings on its web page, this information is in a link at the bottom of the 

In addition, the

Freedom of Information Act (FOIA) recognizes that deliberative processes 

also need to be safeguarded so that decision makers can have 

meaningful discussions and certain information that FSOC considers, 

such as that collected by bank supervisors, is prohibited from public 

disclosure. However, similar bodies, such as the Federal Open Market 

Committee and the Interim Policy Committee in the UK—an entity that 

has a similar role to FSOC’s—publishes minutes that provide greater 

detail. Although the Federal Open Market Committee makes certain 

announcements on the day it meets, after a 3-week delay, it publishes its 

more detailed meeting minutes, which usually include a detailed 

discussion of developments in financial markets and the economy, 

committee member views, and an explanation of committee policy 

actions. In addition, as noted earlier in this report, 5 years after its 

meetings, the Federal Open Market Committee voluntarily releases 

transcriptions of those meetings. The minutes of the Interim Policy 

Committee in the UK provide information on what the committee 

discussed and an update on the health of the economy, including threats 

to financial stability.

 

37See, 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 29 GAO-12-886 Financial Stability Entities

page rather than being prominently displayed. In addition, FSOC does not 

have an online service that regularly alerts interested parties to changes 

to its web pages or upcoming meetings. Further, one member of FSOC 

noted that FSOC relies on emails to members and staff rather than 

having a portal where members can access needed information more 

easily and securely.

OFR’s web pages have been evolving over time especially during July 

and August of 2012, but it could further improve its website. For example, 

we had noted in June 2012 that OFR did not consistently display agency 

testimonies in the same place; in August 2012, OFR rectified these 

omissions. Similarly, in March 2012, OFR told us that the Treasury daily 

blog provided information about OFR activities, but timely notices relevant 

to OFR have not regularly appeared there. For example, many of the 

recent developments related to global approval of the legal entity 

identifier, which OFR cites as a major endeavor, have not appeared in a 

timely manner. In July 2012, OFR added an online service to its own web 

pages to inform those who register that updates have been made to the 

site, but there was a delay in having the feature work consistently. 

However, OFR has not posted some information that would show the 

progress the agency is making in standing up its operations, such as its 

organization chart including the names of its top managers. In 

comparison, the Consumer Finance Protection Bureau, which was also 

created by the Dodd-Frank Act, has for some time had its own domain 

name, an easily identifiable website that includes an organization chart, 

and online services that provide regular updates to interested parties.

Some industry representatives, academics, and former government 

officials have questioned the progress that the new entities have made. 

Some industry representatives with whom we spoke said that they did not 

believe that FSOC and OFR had met their expectations for streamlining 

regulatory requirements (e.g., responding to data requests), improving 

coordination on new regulations, or providing new information on 

systemic risks. Some members of FSOC and their staffs said that they 

learned a great deal from working on and reading the 2011 Annual 

Report; however, some industry representatives with whom we spoke 

said that they did not find that report useful. Among other concerns, 

industry representatives told us that the report did not contain any new 

information on systemic risks or the status of Dodd-Frank act reforms. In 

addition, a group of former government officials, academics, and industry 

representatives convened the Systemic Risk Council in June 2012 to 

address concerns that they said stemmed, in part, from the lack of 

progress made by the members of FSOC and OFR. They said that their 
 

Page 30 GAO-12-886 Financial Stability Entities

concern increased each day that the implementation of systemic reform 

languished. The Systemic Risk Council also noted that it was essential for 

FSOC to provide clear and transparent explanations of regulatory reforms 

in a way that the general public could understand. Communicating more 

effectively with groups critical to their missions and the public could 

improve FSOC’s and OFR’s ability to effectively and efficiently achieve 

their missions.

The Dodd-Frank Act recognizes the importance of collaboration and 

requires FSOC and OFR to collaborate on various activities. Effectively 

building mechanisms to identify risks and potential emerging threats to 

U.S. financial stability will also require FSOC and OFR to collaborate with 

a number of internal and external stakeholders. To date, FSOC and OFR 

have taken steps to promote collaboration; however, they could enhance 

collaboration by more fully incorporating some key elements of effective 

collaboration. Taking full advantage of opportunities to work with 

stakeholders could strengthen FSOC’s and OFR’s ability to carry out their 

missions. For example, in testifying about the need to coordinate agency 

rulemakings, FSOC’s Chairperson noted the importance of coordinating 

both domestically and internationally to prevent risks from migrating to 

regulatory gaps—as they did before the 2007-2009 financial crisis—and 

to reduce U.S. vulnerability to another financial crisis. In addition, effective 

collaboration could eliminate unnecessary duplication for both the 

industry and regulators.

Recognizing the importance of collaboration to FSOC’s and OFR’s 

missions, the Dodd-Frank Act assigns specific collaboration duties and 

responsibilities to these new entities. Title I of the act directs FSOC to 

facilitate information sharing and coordination among its member 

agencies and other federal and state agencies regarding domestic 

financial services policy development, rulemaking, examinations, 

reporting requirements, and enforcement actions.38

 

3812 U.S.C. § 5322(a)(2)(E).

In addition, FSOC 

must consult with the primary financial regulatory agency, if any, before 

designating a nonbank financial company for supervision by the Federal 

Reserve.

FSOC and OFR Have 

Taken Steps to 

Collaborate but Could 

Enhance Their Efforts

The Dodd-Frank Act 

Recognizes the Importance 

of Collaboration to FSOC’s 

and OFR’s Missions
 

Page 31 GAO-12-886 Financial Stability Entities

The Dodd-Frank Act also encourages collaboration between FSOC and 

external stakeholders, especially state regulators and international 

entities. For example, it permits FSOC to appoint technical and 

professional advisory committees which could include industry 

representatives and academics as well as state regulators that may be 

useful in carrying out the council’s functions. The act eases the creation 

of committees by generally exempting them—and FSOC—from the 

Federal Advisory Committee Act (FACA), which requires agencies to 

adhere to a formalized process to ensure that committees are objective 

and accessible to the public.39

The Dodd-Frank Act also specifies a number of duties for OFR that 

require collaboration with FSOC members and others. In particular, OFR 

must collect data on behalf of FSOC, provide the data to FSOC and 

member agencies, and standardize data collection among the agencies.

The act also directs the FSOC 

chairperson, in consultation with FSOC members, to regularly consult 

with financial regulatory entities and other appropriate organizations of 

foreign governments or international organizations on matters relating to 

systemic risk to the international financial system. Further, when 

designating foreign nonbank financial companies for supervision by the 

Federal Reserve, FSOC must consult with appropriate foreign regulatory 

authorities, to the extent appropriate.

40

These activities require collaboration not only with FSOC member 

agencies but also with commercial data providers, publicly available data 

sources, and the financial industry. In addition, like FSOC, OFR can 

appoint technical and professional advisory committees to help leverage 

necessary resources, but these are not exempt from FACA.

FSOC and OFR have taken steps to enhance collaboration among FSOC 

members and member agencies and with external stakeholders. 

Members’ staffs stated that FSOC’s organizational and committee 

structures help support collaboration both on a formal and informal basis. 

Through these committees, staff from member agencies said they have 

 

39 5 U.S.C. App. 2.

40The Dodd-Frank Act provides that member agencies, in consultation with OFR, must 

implement regulations promulgated by OFR to standardize the types and formats of data 

reported and collected on behalf of FSOC. However, it also explicitly notes that this 

provision does not supersede or interfere with the independent authority of a member 

agency under other law to collect data in such format as the agency requires.

FSOC and OFR Have 

Taken Steps to Promote 

Collaboration 
 

Page 32 GAO-12-886 Financial Stability Entities

developed good working relationships with staff from other agencies. 

Prior to FSOC, two means of collaborating were the President’s Working 

Group on Financial Markets and the Federal Financial Institutions 

Examination Council.41

Through the committee structure, FSOC members’ staffs also noted that

agencies had leveraged their joint expertise and resources to carry out 

FSOC’s statutory responsibilities, including rulemakings. For example, an 

ad hoc interagency lawyers group was formed shortly after the passage 

of the Dodd-Frank Act to provide regular input into the rulemaking 

process. The standing committees also provide input on rulemakings 

dealing with issues within their areas of expertise. In addition, throughout 

the rulemaking processes the Deputies Committee was briefed regularly, 

especially on issues that could not be resolved in other committees or 

working groups. The deputies kept their respective FSOC members 

informed throughout the rulemakings.

Members’ staffs noted that communication within 

FSOC had been broader and deeper than in either of those forums 

because staff from more agencies participate in FSOC at various levels. 

For example, staff said that various FSOC committees and working 

groups have allowed staff to develop contacts at other agencies with 

whom they can consult and share information on a variety of topics. In 

addition, staff said that through FSOC they had become acquainted with 

others having different expertise and have had the opportunity to share 

their views and experience with others. For example, the independent 

insurance member and his staff noted that they had used FSOC as a 

forum to provide information on insurance companies’ use of money 

market funds, which may differ from the more common retail fund 

mechanisms.

We discussed with Treasury staff the FSOC chairperson’s consultations 

with financial regulatory entities and other appropriate organizations of 

 

41The President’s Working Group on Financial Markets was established by an executive 

order in 1988, in response to the 1987 market crash. Executive Order 12631 of March 18, 

1988, 15 U.S.C. § 78b note. The Federal Financial Institutions Examination Council 

(FFIEC) was established in 1979, pursuant to the Federal Financial Institutions 

Examination Council Act of 1978, 12 U.S.C. §§ 3301-3311. It is a formal interagency body 

empowered to prescribe uniform principles, standards, and report forms for the federal 

examination of financial institutions by the Federal Reserve, National Credit Union 

Administration, FDIC, OCC, and the State Liaison Committee, and to make 

recommendations to promote uniformity in the supervision of these financial institutions. 

The Dodd-Frank Act added the Consumer Financial Protection Bureau to FFIEC. The 

President’s Working Group and FFIEC remain in place. 
 

Page 33 GAO-12-886 Financial Stability Entities

foreign governments or international organizations on matters relating to 

systemic risk to the international financial system. Treasury staff noted 

that the FSOC chairperson, who is also the Secretary of the Treasury, 

has regular contact with foreign officials and shares information from 

these interactions with other U.S. regulators at FSOC meetings. They 

said that they have monitored these activities and believe that FSOC is 

complying with the Dodd-Frank requirement.

Further, OFR has taken some actions to collaborate by leveraging the 

expertise of external stakeholders and coordinating U.S. activities 

internationally. In particular, FSOC and OFR held a joint conference in 

December 2011 to discuss data and technology issues and analytical 

approaches for assessing threats to financial stability. The conference 

included attendees from the financial regulatory community, academia, 

public interest groups, and the financial services industry. OFR has also 

initiated a working paper series in which OFR researchers have 

collaborated with outside academics to catalog systemic risk monitoring 

systems and ways to improve risk management at financial institutions. In 

addition, OFR has invited experts on various aspects of financial stability 

to give seminars to OFR and FSOC policy staff. OFR has also announced 

plans to create the Financial Research Advisory Committee to solicit 

advice, recommendations, analysis, and information from academics, 

researchers, industry leaders, government officials, and experts in the 

fields of data and technology. Applications were due in April 2012, and in 

August 2012 OFR officials said that the list of applicants was in the final 

stage of review. OFR officials also noted that they play a key role on 

FSOC’s Data Committee, which supports coordination of and consultation 

on issues related to FSOC data collection and sharing.

In addition, OFR is working to standardize data reporting systems among 

FSOC member agencies. OFR officials noted that the agency had begun 

a three-stage process to assemble an inventory of data collected by 

FSOC member agencies as a first step toward standardizing data, 

reducing duplication, and eventually lowering costs for industry and 

regulators. The three stages examine data (1) purchased by the 

agencies, (2) collected through regulatory activities, and (3) derived by 

the agencies from data they purchased or collected. An OFR official said 

that the first phase was complete but had taken longer than initially 

envisioned because of the complexities of the project including agencies’ 

use of different terminology for the same databases. For instance, the 

official noted that it had been difficult to create an effective survey 

instrument to capture the data purchased by the agencies, because the 

survey instrument had to capture the different terminology used by the 
 

Page 34 GAO-12-886 Financial Stability Entities

various agencies. OFR officials said that they expected the process to 

allow them to determine when multiple agencies used the same data, 

identify data gaps more effectively, and seek potential savings in data 

acquisition. For example, they have been able to negotiate contracts that 

provide the small office of the independent insurance member of FSOC 

with access to expensive private databases. OFR officials said that OFR 

is also working with FSOC member agencies through FSOC’s Data 

Committee to address differences in existing security classification 

systems and support efficient, secure data-sharing efforts given the 

statutory responsibilities agencies have to ensure the confidentiality of 

certain data. Many industry representatives with whom we spoke said that 

this project could help relieve regulatory burdens by standardizing datareporting systems and reducing duplication, noting that currently multiple 

agencies ask for the same data but in different formats or at different 

times.

Moreover, OFR has collaborated with industry, foreign government 

entities, and international bodies to create a legal entity identifier, which 

OFR describes as an emerging global standard that will enable regulators 

and companies around the world to quickly and accurately identify parties 

to financial transactions. Building on earlier industry and interagency 

efforts and on CFTC’s and SEC’s responses to mandates on data 

standards, OFR led U.S. government efforts to promote global adoption 

of the identifier. Within the expert group appointed by the Financial 

Stability Board to develop recommendations for the Group of 20 (G20) 

countries regarding the identifier, OFR led the U.S. consultative group, 

and OFR staffers have been leading singly or jointly the development of a 

governance framework and operating protocols.42

 

42The Group of 20 (G20) is a group of finance ministers and central bank governors from 

19 countries—including the United States—and the EU. The Financial Stability Board 

brings together from the G20 countries central bank officials, finance and treasury officials, 

and financial institution regulators; officials of the International Monetary Fund and World 

Bank, and representatives from non-G20 countries to address issues related to global 

financial stability.

The Financial Stability 

Board endorsed the expert group’s recommendations in May 2012. In 

June 2012, the G20 endorsed the proposal, which includes a target for 

implementing a legal entity identifier system globally, with some 

allowance for variation across countries, by March 2013. OFR continues 

to serve as the vice-chair for the Americas on the group charged with 

implementing the identifier.
 

Page 35 GAO-12-886 Financial Stability Entities

While the previous examples show the progress FSOC and OFR have 

made in terms of promoting collaboration, other examples suggest that 

additional actions are needed. In our prior work, we have identified 

practices that agencies can use to enhance and sustain their 

collaborative efforts. These include identifying and addressing needs by 

leveraging resources, agreeing on roles and responsibilities, and 

establishing mutually reinforcing or joint strategies.43

Leveraging resources. FSOC has not taken advantage of 

opportunities to leverage resources through its authority to appoint 

technical and professional advisory committees. In addition to 

state regulators and council members, the Dodd-Frank Act 

specifies that such committees could include other persons. Such 

persons could be those from the industry and academics. Industry 

representatives have commented on the benefits of having 

industry input through such a committee, but, to date, FSOC has 

not established such committees. Moreover, the ability of FSOC 

members to leverage expertise varies. For example, while FSOC 

members from federal regulatory agencies are able to draw on 

staff from across their agencies, the independent insurance 

member and state representatives have limited support structures. 

The state representatives are limited by the number of support 

staff that have been allowed to sign required confidentiality 

agreements and this may limit these members’ access to certain 

regulatory expertise. The representative of state insurance 

regulators noted that he must rely solely on his limited department 

staff and a small group of staff from the National Association of 

Insurance Commissioners that have been detailed to his 

department and have signed the confidentiality agreement to 

support his FSOC activities, including committee 

representation. In a letter to the FSOC Chairperson, the National 

Association of Insurance Commissioners and the State Insurance 

Representative that is a member of FSOC, stated that the State 

Insurance Representative had been prohibited from discussing or 

The examples below 

highlight areas in which FSOC’s collaboration efforts could be enhanced 

by more fully reflecting these principles.

 

43See GAO-06-15. Other practices include developing mechanisms to monitor, evaluate, 

and report on results; reinforcing agency accountability for collaborative efforts through 

agency plans and reports; and reinforcing individual accountability for collaborative efforts 

through performance management systems.

FSOC Could Enhance 

Collaboration by 

Incorporating Key 

Practices
 

Page 36 GAO-12-886 Financial Stability Entities

seeking guidance from other relevant state regulators even on a 

confidential basis. Subsequent to this letter, FSOC issued an 

“operational interpretation” of the MOU on the treatment of 

nonpublic information. This interpretation states in part that the 

MOU does not prevent an FSOC member from consulting or 

discussing with anyone FSOC proposals, rules or other matters 

provided that the member does not (1) disclose specified types of 

confidential information; (2) attribute nonpublic proposals, rules or 

other matters to FSOC or any of its members or (3) disclose their 

views on such matters.

Similarly, the representative of the state banking regulators is 

supported by four staff from the Conference of State Bank

Supervisors and the representative of the state securities 

regulators by two staff from the North American Securities 

Administrators Association. The state banking member’s staff 

noted that Treasury had worked with the state members to secure 

their assistance, and that the State Banking Supervisor generally 

had adequate staff support. However, they did note that they think

the process limited access to other state banking supervisors with 

specialized expertise. For example, they noted that they might 

want to consult with New York banking staff on international 

issues before FSOC, but confidentiality restrictions limit them to 

sharing information on FSOC matters only with the member, his 

state banking staff, and others who have signed a confidentiality 

agreement. In addition, the FSOC state insurance representative 

and his staff told us that because of the confidentiality restrictions, 

they had limited their discussions at International Association of 

Insurance Supervisors meetings, because they thought they could 

not speak to issues being discussed within FSOC.

Agreeing on roles and responsibilities. As noted earlier, FSOC is 

tasked with monitoring the financial services marketplace to 

identify potential threats to U.S. financial stability, and OFR must 

develop and maintain metrics and reporting systems for risks to 

U.S. financial stability as well as monitor, investigate, and report 

on changes in system-wide risk levels. These responsibilities 

overlap somewhat, but this overlap is not unexpected given OFR’s 

primary mission of supporting FSOC. FSOC and OFR staff cited 

their statutory responsibilities for monitoring risks to U.S. financial 

stability as the reason that both organizations are pursuing efforts 

in this arena. FSOC and OFR staff also noted that OFR 

participates on the Systemic Risk Committee, allowing for some 
 

Page 37 GAO-12-886 Financial Stability Entities

coordination of efforts. The Dodd-Frank Act defines certain 

responsibilities for FSOC and OFR, but, the lack of clear 

responsibility for implementation can lead to duplication, 

confusion, and gaps in their efforts. This risk is further 

compounded by the fact that many FSOC member agencies have 

risk analysis and data collection functions associated with their 

supervisory responsibilities. Some of these functions are explicitly 

focused on risks to financial stability, and some member agencies 

have created their own programs to examine these risks. For 

example, in 2010 the Federal Reserve created an Office of 

Financial Stability Policy and Research to identify and analyze 

potential threats to financial stability. FDIC, SEC, and the Federal 

Housing Finance Agency have also created offices in recent years 

to monitor risks to financial stability originating in their regulated 

markets. To the extent that these programs provide unique 

information to FSOC, they will be contributing to the overall effort. 

However, if not properly coordinated, these separate efforts could 

be duplicative, resulting in wasted time and resources.

Establishing reinforcing or joint strategies. To achieve a common 

outcome, collaborating agencies need to establish strategies that 

work in concert with those of their partners or that are joint in 

nature. Such strategies help in aligning activities, core processes, 

and resources to reach a common outcome. In this area, FSOC 

has taken actions to better coordinate members’ rulemakings. In 

October 2010, it issued an integrated implementation road map for 

the Dodd-Frank Act that included a list of the rules regulators were 

required to promulgate, provided a time line for those rulemakings, 

and identified the agencies responsible for each rulemaking. 

FSOC has also developed a consultation framework for the 

agencies involved in rulemakings where consultation is required 

by the Dodd-Frank Act. The framework establishes time frames 

for coordinating three tasks: initial interagency meetings, 

circulation of term sheets for interagency comments, and 

circulation of proposed rules for interagency comments. In a 

November 2011 report, we noted that although FSOC’s road map 

and consultation framework were a positive development in 

facilitating coordination, they had limited usefulness.44

 

44See 

For 

GAO-12-151. 
 

Page 38 GAO-12-886 Financial Stability Entities

example, the consultation framework does not provide, nor 

according to FSOC staff is it intended to provide, any specifics 

about staff responsibilities or processes to facilitate coordination. 

For example, it does not mention the extent to which interagency 

coordination is required or what happens when rulemakings 

conflict with or duplicate each other. As a result, we recommended 

that FSOC work with the federal financial regulatory agencies to 

establish formal coordination policies that would clarify issues 

such as the timing of coordination, the process for soliciting and 

addressing comments, and FSOC’s role in facilitating 

coordination.45 To date, FSOC has not implemented this 

recommendation. Industry representatives with whom we spoke 

also questioned why FSOC could not play a greater role in 

coordinating member agencies’ rulemaking efforts. As an example 

of how coordination could be improved, representatives noted that 

FSOC’s rule and interpretive guidance on designating nonbank 

financial companies for Federal Reserve supervision was finalized 

before the Federal Reserve had issued a rule laying out the 

requirements for determining whether a company would fall within 

the statutory definition of a financial company.46

 

45See 

FSOC and 

Federal Reserve staff said that after the timetable was set for the 

FSOC rule, the Federal Reserve decided that it needed to clarify 

some issues with its rulemaking, creating the anomaly of having a 

process for designating financial companies before the 

requirements for meeting the definition of a financial company had 

been adequately identified. The Secretary of the Treasury, 

FSOC’s Chairperson has noted in testimony before the Congress 

that he does not have the power to force FSOC members to 

collaborate on rulemakings.

GAO-12-151. 

46Section 102(a)(4) of the Dodd-Frank Act defines a nonbank financial company for 

purposes of title I of the act as a domestic or foreign company (other than a bank holding 

company or certain other types of firms) that is predominantly engaged in financial 

activities as specified in section 102(a)(6).
 

Page 39 GAO-12-886 Financial Stability Entities

The Dodd-Frank Act requires FSOC to consult on a number of regulatory 

agency rulemakings, but it gave FSOC a few responsibilities that have led 

it to issue its own rules. These responsibilities include the authority to 

designate FMUs as systemically important and nonbank financial 

companies for supervision by the Federal Reserve under its enhanced 

prudential standards and to reevaluate the latter designations annually. 

While individual designations are not made by rule, in an effort to be more 

transparent, FSOC has issued rulemakings explaining the processes and 

criteria it will follow in making the individual designations. However, FSOC 

is not required to and has not developed a separate process to assess 

the overall impact of these designations including whether they are 

having the intended result of improving U.S. financial stability. The DoddFrank Act also mandated that FSOC issue a number of reports during its 

first two years, and FSOC has issued these by the mandated due dates. 

Most of these were one-time reports; however, FSOC is also mandated to 

report annually on a number of items, including potential emerging threats 

to financial stability. Both the 2011 and 2012 Annual Reports identify a 

number of threats, but they do not use a systematic forward-looking 

process for doing so. As a result, the reports may not be providing the 

public and Congress with the best information for guiding their decisions 

relative to these threats.

The Dodd-Frank Act provided FSOC with the authority to designate FMUs 

as systemically important. FMUs are to be considered systemically 

important if FSOC determines that the failure of an FMU or a disruption in 

its functioning could threaten U.S. financial stability. Similarly, the DoddFrank Act provided FSOC with the authority to designate nonbank 

financial companies for supervision by the Federal Reserve under its 

enhanced prudential standards.47

 

47The Dodd-Frank Act also subjects large bank holding companies with total consolidated 

assets of $50 billion or more to enhanced supervision and prudential standards. No FSOC 

designation is required for these bank holding companies to be subjected to enhanced 

supervision and standards. In addition, some potential nonbank holding companies that 

may be designated are already subject to some Federal Reserve oversight because they 

are thrift holding companies. The Dodd-Frank Act transferred the oversight of these 

companies from the Office of Thrift Supervision to the Federal Reserve.

The act stipulates that FSOC may 

designate these companies for Federal Reserve supervision if material 

financial distress at that company, or the nature, scope, size, scale, 

concentration, interconnectedness, or mix of the activities of the 

company, could pose a threat to U.S. financial stability. The Federal 

FSOC Has Issued 

Rules and Reports but 

Processes May Not 

Ensure That Ongoing 

Activities Have the 

Intended Results

FSOC Has Issued Rules on 

Processes for Designating 

Certain Financial Entities 

for Additional Supervision 

and the Freedom of 

Information Act
 

Page 40 GAO-12-886 Financial Stability Entities

Reserve has not issued final rules on its enhanced prudential standards, 

but other final rules that will apply to designated nonbank financial 

companies have been issued. These rules include a rule on resolution 

plans or “living wills,” jointly issued by the Federal Reserve and FDIC that 

will require designated nonbank financial companies to prepare resolution 

plans and a rule, issued by the Treasury, which establishes an 

assessment schedule for the Financial Research Fund—the fund that 

finances OFR and FSOC under the Dodd-Frank Act.48

FSOC issued final rules on the processes FSOC intends to use for 

designating FMUs as systemically important and nonbank financial 

companies for Federal Reserve supervision in July 2011 and April 2012, 

respectively. In accordance with the Dodd-Frank Act, both rules specify 

that two-thirds of FSOC’s voting members, including the chairperson, 

must vote to designate FMUs and nonbank financial companies. Each 

rule, with any accompanying interpretive guidance, also outlines a 

multistage process that FSOC intends to follow in designating these 

entities, including a process for designated entities to request an FSOC 

hearing before the designation becomes final. In its 2012 Annual Report, 

FSOC reported that it had designated eight FMUs as systemically 

important. In contrast, FSOC has not yet designated any nonbank 

financial companies.

In April 2012, FSOC also issued a rule implementing the Freedom of 

Information Act (FOIA).49 The Dodd-Frank Act states that FOIA, including 

its exceptions from disclosure, applies to any information submitted to 

FSOC or OFR under title 1 of the act. It further states that FSOC, OFR, 

and member agencies are to maintain the confidentiality of such 

information if that confidentiality is protected from public disclosure by 

federal or state law.50

 

48Other Dodd-Frank provisions impose additional requirements on large bank holding 

companies and nonbank financial companies designated by FSOC. These include a 

requirement that the Federal Reserve subject designated nonbank financial companies 

that engage in proprietary trading to additional capital requirements, the authority of CFTC

to impose limitations on the ability of those companies to control derivative clearing 

organizations and exchanges, and the ability of FDIC to impose risk-based assessments 

on large bank holding companies and designated nonbank financial companies if 

necessary to repay any obligations issued by FDIC to Treasury under the orderly 

liquidation authority. 

While FOIA would apply with or without a rule, 

495 U.S.C. § 552. 

50Pub. L. No. 111-203, § 112(d)(5), 124 Stat. 1397. 
 

Page 41 GAO-12-886 Financial Stability Entities

FSOC issued a rule setting out the procedures for requesting access to 

information contained in its records.

According to Treasury officials and staff, FSOC’s rulemaking authority is 

narrow compared to that of the member agencies. The Dodd-Frank Act 

requires that those agencies issue a large number of rules, while it 

assigns few authorities to FSOC that may lead to rulemakings. Although 

FSOC does not have extensive rulemaking authority or written policies 

and procedures, its rulemakings followed a general process. For each 

rule, FSOC published a notice of proposed rulemaking in the Federal 

Register before issuing a final rule and included a time period for public 

comments (see table 1). Treasury staff noted that FSOC was not required 

to issue the various rulemakings but went through this process to provide 

greater public transparency of its processes. According to FSOC and 

Treasury officials, officials and staff from Treasury’s Office of General 

Counsel led the rule-drafting process, with officials and staff from 

Treasury’s Office of Domestic Finance, including the FSOC policy staff, 

and members’ staffs contributing significantly to the drafting of the 

designations rules. The processes relied on various groups and 

mechanisms to get feedback from officials and FSOC members’ staffs 

including standing committees and ad hoc working groups. The Deputies 

Committee was briefed regularly throughout the process, especially on 

issues that could not be resolved in other committees or working groups. 

Deputies kept their respective FSOC members informed throughout the 

rulemakings, and the members received all of the rule-making notices 

and final rules at least 48 hours before they were to be voted on at FSOC 

meetings. FSOC members voted unanimously to issue all of the rulemaking notices and final rules before they were published in the Federal 

Register.

FSOC Generally Followed 

Similar Processes for Rules 

That Required Limited 

Regulatory Analysis 
 

Page 42 GAO-12-886 Financial Stability Entities

Table 1: FSOC Rules Issued between July 21, 2010 and July 20, 2012 

Title Issuance date 

Due date for 

comments

Number of 

comments Effective date

Authority to Designate Financial Market Utilities as Systemically Important

Advance Notice of Proposed 

Rulemaking (NPR)

December 21, 2010 January 20, 2011 12

NPR March 28, 2011 May 27, 2011 15

Final Rule July 27, 2011 n/a N/A August 26, 2011

Authority to Require Supervision and Regulation of Certain Nonbank Financial Companies

Advance NPR October 6, 2010 November 5, 2010 50

NPR January 26, 2011 February 25, 2011 35

Second NPR October 18, 2011 December 19, 2011 41

Final rule April 11, 2012 n/a N/A May 11, 2012

Implementation of the Freedom of Information Act

NPR March 28, 2011 May 27, 2011 9 

Final rule April 11, 2012 n/a N/A May 11, 2012

Source: GAO summary of information from the Federal Register.

Note: n/a stands for not applicable. 

Although the process for the rulemakings followed a general pattern, the 

number of notices, the time between the initial notice and the final rule, 

and the number of comments varied considerably across rules. Generally, 

these differences reflected differences in priorities and the potential 

impact of each rule. For example, FSOC and some member agency 

officials attributed the longer lapse between receiving comments on the 

notice for implementing FOIA and issuing the final rule to the relatively 

low priority attached to completing this rule. Officials told us that the rule 

remained a relatively low priority because FSOC had not yet begun 

gathering information under the FMU and nonbank financial company 

designation rules. In contrast, the long gap between the receipt of 

comments on the first notice of proposed rulemaking for the nonbank 

financial company rule and the issuance of the final rule reflects the 

complexities of developing a rule that encompasses a broad range of 

industry segments and the potential impact on them.

During the gap between the first and second notices of proposed 

rulemaking for designating nonbank financial companies, FSOC and OFR 

staff developed information to support a set of thresholds for determining 

which nonbank financial companies would pass from the first stage of the 

designation process to the second. The thresholds, which were included 

in the interpretive guidance that accompanies the second notice, use 
 

Page 43 GAO-12-886 Financial Stability Entities

publicly available information so that the first stage would be transparent. 

Financial companies have to meet a size threshold of $50 billion in assets 

and one of five other thresholds, including measures of leverage and 

debt. The thresholds generally reflect staff calculations. Staff generally 

calculated thresholds by placing the threshold at an interval above the 

mean that considers the dispersion of the data from the mean. Staff also 

tested to see whether certain companies that experienced material 

distress during the 2007-2009 financial crisis would have been captured 

by the threshold. The data used were generally either data on the 19 

largest bank holding companies or nonbank financial companies in 2007 

and 2008.

FSOC is subject to laws and executive orders that require certain 

regulatory analyses as part of its rule-making processes. These include 

the Paperwork Reduction Act and the Regulatory Flexibility Act, as well 

as Executive Orders 12866 and 13563 (Executive Orders). Among other 

things, the Paperwork Reduction Act requires agencies to justify any 

collection of information from the public and to estimate the time and 

expense required to comply with the paperwork requirements in the rule. 

The Regulatory Flexibility Act requires federal agencies to assess the 

impact of their regulation on small entities and consider regulatory 

alternatives to lessen any regulatory burden. The Executive Orders 

require FSOC to assess the economic effects of economically significant 

rules, including the quantitative and qualitative benefits and costs of those 

regulations.51

However, FSOC was required to consider costs and benefits only as they 

relate to the Paperwork Reduction Act for the FMU and nonbank financial 

company rulemakings. As a result, these rules contain estimates of the 

time needed to comply with paperwork requirements. FSOC estimates 

the annual reporting burden for the FMU rule at 500 hours and for the 

nonbank financial company rule at 1,000 hours. The FMU rule does not 

include an estimate of the cost of the projected hours; the cost for the 

hours imposed by the nonbank financial company rule is estimated at 

$450,000 a year. FSOC concluded that small entities were unlikely to be 

 

51A regulatory action is determined to be “economically significant” if the Office of 

Management and Budget determines that it is likely to have an annual effect on the 

economy of $100 million or more or adversely affect in a material way the economy, a 

sector of the economy, productivity, competition, jobs, the environment, public health or 

safety, or state, local, or tribal governments or communities. 
 

Page 44 GAO-12-886 Financial Stability Entities

designated as posing a risk to U.S. financial stability, and thus an analysis 

of the rules designating FMU and nonbank financial companies’ impact 

on small entities was not required. In addition, FSOC did not conduct a 

benefit-cost analysis for the rules designating FMUs or nonbank financial 

companies because the Office of Management and Budget determined 

that these rules were not economically significant. Treasury officials noted 

that the rule did not impose substantive requirements on specific entities, 

but only laid out the process by which they could become subject to other 

rules and regulations. In addition, FSOC member staff noted that costs 

and benefits of the designation were not among the factors that the DoddFrank Act directs FSOC to consider when making a designation.

Designating FMUs and nonbank financial companies was intended to 

address certain risks to financial stability posed by these entities. The 

designations, however, have the potential to confer certain benefits and 

costs on the wider economy and individual entities being designated. 

Examples of potential benefits and costs of subjecting FMUs and 

nonbank financial companies to heightened supervision include the 

following:

Economy-wide benefits. The Dodd-Frank Act provides FSOC with 

the authority to designate nonbank financial companies because 

Congress believed that these companies could threaten U.S. 

financial stability. Subjecting companies to enhanced supervision 

may contribute to financial stability.

Individual benefits. Some research has shown that certain large, 

interconnected financial institutions considered too big to fail may 

have higher credit rating agency ratings and lower borrowing costs 

than would otherwise be warranted. As a result, designated 

nonbank financial companies that are not already treated as too 

big to fail by rating agencies or markets could see their borrowing 

costs fall.52

Economy-wide costs. Industry representatives have noted that 

regulations such as minimum capital requirements that may be 

 

52Expert opinions differ on whether certain provisions in title II of the Dodd-Frank Act will 

lessen any cost advantage certain institutions have enjoyed.

FSOC Has Not Set up 

Processes to Assess Whether 

Designating FMUs and 

Nonbank Financial Companies 

Will Have the Intended Impact 
 

Page 45 GAO-12-886 Financial Stability Entities

imposed on designated entities have the potential to reduce the 

availability of credit and slow economic growth.

Individual costs. Some of those who commented on the nonbank 

financial company rule noted that being designated would impose 

a significant regulatory burden on the designated companies. 

Designated nonbank financial companies will be subject to 

supervision similar to that for large bank holding companies, 

required to prepare resolution plans, and assessed fees to fund 

the operation of OFR and FSOC. However, the impact of these 

Dodd-Frank Act provisions on designated nonbank financial 

companies will not be known until the rules are applied. 

Designated FMUs could also experience increased costs.

The Dodd-Frank Act requires FSOC to rescind any designation if the 

institution no longer meets the FMU or nonbank financial company 

standards and specifically requires FSOC to reevaluate nonbank financial 

company designations at least annually. The final rule for designating 

certain nonbank financial companies for enhanced supervision says 

FSOC will notify a nonbank financial company prior to an annual 

reevaluation and provide the company up for review with an opportunity 

to submit written materials to contest the designation. However, the rule 

also notes that reevaluations will focus on material changes since a 

previous review rather than a full replication of the original designation 

process. In the interpretive guidance for the nonbank financial company 

designations, FSOC says that it also intends to review the 

appropriateness of both the stage one thresholds and the levels of the 

thresholds that are specified in dollars as needed, but at least every five 

years, and to adjust the thresholds and levels as it may deem advisable. 

However, FSOC has not set up processes to conduct a comprehensive 

assessment of the overall impact of designations.

Doing a comprehensive analysis to assess whether designations are 

having their intended impact of providing greater financial stability and the 

extent of any other impacts will be challenging. Namely, establishing a 

baseline from which to evaluate the overall impact of various rules will 

likely be complex because the impact of being designated will depend on 

the application of a number of rules being written by multiple independent 
 

Page 46 GAO-12-886 Financial Stability Entities

regulatory agencies and issued over a span of time. 53

FSOC is uniquely positioned to address this challenge. FSOC is 

responsible for designating FMUs and nonbank financial companies, and 

its member agencies are responsible for writing the rules that will impact 

these designated entities. Moreover, FSOC can rely on OFR for some 

data collection and analysis. However, FSOC members would need to 

collaborate on such an assessment, because FSOC policy and OFR staff, 

who are Treasury employees, may not have access to all of the needed 

information. In addition, collaboration is needed because, according to 

Treasury officials, it would be inappropriate for FSOC staff to review rules 

drafted by independent agencies unless those agencies agreed to 

participate in the comprehensive assessment. Without such an 

assessment, decision makers may not have the information they will need 

to determine whether designating new entities for enhanced supervision 

and other requirements and restrictions is addressing a perceived gap in 

the regulatory system and improving the stability of the financial system 

or whether policy changes should be considered.

For example, rules 

the CFTC, Federal Reserve, and SEC are writing will help determine the 

impact of being designated a systemically important FMU. Similarly, the 

impact of being designated a nonbank financial company will be 

influenced by the rule the Federal Reserve is writing, to implement 

enhanced prudential standards; the Federal Reserve and FDIC rule on 

resolution planning; and Treasury’s rule on assessments to fund FSOC 

and OFR. Moreover, not all of these agencies are required to conduct 

cost-benefit analyses that might be useful in establishing a baseline for 

ongoing evaluation. For example, neither the Federal Reserve nor FDIC 

are subject to the Executive Orders that require an economic analysis of 

the costs and benefits of certain rules. Furthermore, while some 

regulatory agencies may conduct periodic retrospective reviews of their 

rules, these reviews tend to focus only on the rules issued by their 

agency.

 

53In GAO-12-151 we note the importance of setting up baselines early to support later 

retrospective reviews of individual rules. In addition, we reported that in light of its various 

statutory requirements, FSOC plans to assess the future impact of significant Dodd-Frank 

rules. Given these plans, we previously recommended that FSOC direct OFR to begin 

collecting the necessary data to carry out these analyses. 
 

Page 47 GAO-12-886 Financial Stability Entities

As table 2 shows, the Dodd-Frank Act mandated that FSOC issue a 

number of reports, including five one-time studies and ongoing annual 

reports.54

Table 2: Reports Mandated by the Dodd-Frank Act and Issued by FSOC from July 21, 2010 to July 20, 2012

Although some of the timelines were short—two of the studies 

had to be issued in 6 months—and the subject matter difficult, FSOC met 

all of its mandated report timelines and generally strove to address the 

specific items in the mandate. For example, the mandated studies 

generally began with a discussion of the mandate itself and the extent to 

which the report could address certain questions. The 2011 Annual 

Report also generally addressed the subjects in the mandate, including 

identifying emerging threats to financial stability of the nation and 

recommendations to enhance the integrity, efficiency, competitiveness, 

and stability of U.S. financial markets; promote market discipline; and 

maintain investor confidence.

Report title Issuance date 

Number of

public comments

Number of 

recommendations

Studies

Study & Recommendations on Prohibitions on Proprietary Trading & 

Certain Relationships with Hedge Funds & Private Equity Funds 

January 2011 8,000 10 a

Study & Recommendations Regarding Concentration Limits on Large 

Financial Companies

January 2011 6 3 

Report to the Congress on Secured Creditor Haircuts July 2011 n/a 0 

Report to the Congress on Prompt Corrective Action December 2011 n/a 0 

Report to Congress on Study of a Contingent Capital Requirement for 

Certain Nonbank Financial Companies and Bank Holding Companies

July 2012 n/a 1 

Annual reports

FSOC 2011 Annual Report July 2011 n/a 14

FSOC 2012 Annual Report July 2012 n/a 29

Source: GAO summary of information from FSOC.

Note: n/a stands for not applicable. 

a

 

54The Dodd-Frank Act also mandated that the FSOC Chairperson report on the 

macroeconomic effects of risk retention requirements and the effects of the size and 

complexity of financial institutions on capital market efficiency and economic growth by 

January 2011. The National Credit Union Authority Clarification Act required FSOC to 

report on actions taken in response to a mandated study by GAO on the National Credit 

Union Administration’s supervision of corporate credit unions and implementation of 

prompt corrective action. The report was issued in June 2012.

This number includes 6,550 similar letters that FSOC describes as essentially the same letter with 

different signatures.

FSOC Has Issued 

Mandated Reports, but 

Does Not Have Sufficient 

Processes for Identifying 

or Prioritizing Emerging 

Threats
 

Page 48 GAO-12-886 Financial Stability Entities

The processes that FSOC used to issue all of the reports were generally 

similar to those used for rulemakings. Treasury officials led activities 

related to issuing the studies, except that the Federal Reserve staff led 

activities for and was the author of the study on concentration limits. For 

the annual reports, FSOC brought on detailees from Federal Reserve 

District Banks to lead the process. For all of the reports, the process 

relied on ad hoc working groups of member staff to provide input. FSOC 

also relied on the Deputies Committee to help manage the process and 

keep FSOC members informed of key decisions. The members voted 

unanimously to issue all of the reports.

FSOC’s annual reporting process is an ongoing responsibility which, in 

the absence of a strategic plan, functions as its major strategic planning 

document and method for communicating with Congress and the public, 

especially regarding potential emerging threats to U.S. financial stability. 

FSOC’s early annual reports provide extensive information about the 

current economy and complex issues, such as high-frequency trading and 

the MF Global bankruptcy. In addition, the reports provide extensive 

discussions of current known threats such as those associated with 

money market funds and the European sovereign-debt crisis and makes 

some recommendations to address them. However, FSOC has not 

developed a structure that supports having a systematic or 

comprehensive process for identifying potential emerging threats. The 

process for identifying these threats is similar, in some ways, to that used 

by the Systemic Risk Committee. Members’ staffs, including some 

members of the Systemic Risk Committee, identify specific threats for 

consideration. As a result, new threats that members or staff have not 

already identified may not be included.

In addition, the lack of a systematic process for identifying potential 

emerging threats leads to potential inconsistencies in identifying such 

threats. For instance, certain potential threats related to U.S. debt, are not 

in the 2011 Annual Report. Instead this report has a conflicting message 

on the danger the U.S. debt poses to financial stability.55

 

55The Executive Summary of FSOC’s 2011 Annual Report acknowledges that there is a 

long run imbalance in the U.S. budget and that a solution to that imbalance is crucial to 

U.S. financial stability. However, the body of the report says that the current pricing of U.S. 

debt implies that markets assume that a solution to the long-term imbalance will be found, 

and the issue is not included as an emerging threat.

The project 

leader of the 2011 Annual Report said that the report did not include the 
 

Page 49 GAO-12-886 Financial Stability Entities

U.S. debt as an emerging threat because of issues of balance and the 

inappropriateness of FSOC speculating on the credit risk associated with 

U.S. Treasury securities. However, the 2012 Annual Report identifies the 

U.S. debt as a potential threat, but does not explain what has changed 

since the 2011 report.56

Similarly, neither the 2011 or 2012 annual reports use a systematic 

forward-looking approach to identify potentially emerging threats. As a 

result, they comingle threats that emerged during the 2007-2009 crisis, 

current threats, and potentially emerging threats. Although the 2012 

report notes that structural vulnerabilities that contributed to the 2007-

2009 financial crisis associated with mortgage-backed securities backed 

by subprime mortgage debt built up over an 8-year period, the report 

does not use a systematic mechanism for identifying similar kinds of 

asset build-ups or other market changes that might signal a potential 

emerging threat. Rather the report often identifies risks, such as those 

associated with the European sovereign-debt crisis or money market 

funds, which are ongoing or have previously been identified, although it 

acknowledges that these events may change in the future in ways that 

are not currently known. The 2012 report does include at least one area 

that could be considered potentially emerging—threats associated with 

having a low interest rate environment. Specifically it notes threats 

associated with market participants taking on more risk to increase their 

Similarly, the 2011 report includes several threats 

associated with possible unintended consequences of new regulations 

being written to implement the Dodd-Frank Act, but the 2012 report does 

not include these threats. The 2012 report does include a framework for 

identifying potential emerging threats, but, this framework, which 

separates threats into shocks to the system and vulnerabilities in the 

system that would exacerbate shocks, is not equivalent to the kind of 

systematic analysis that would help determine both the likelihood of a 

threat and its likely severity. Without a systematic process that 

consistently identifies threats Congress and the public might believe that 

a threat has grown in importance or been addressed when that is not the 

case.

 

56FSOC’s 2012 Annual Report notes that there are both short-term and longer-term risks 

associated with the U.S. fiscal situation saying that the situation represents a source of 

uncertainty for financial markets and the real economy. OFR’s 2012 Annual Report 

identifies the U.S. fiscal situation as a concern noting that the risk of a sharp change in the 

demand for U.S. Treasury securities potentially threatens U.S. financial stability. Both 

reports continue to note that in the short run yields on U.S. debt are very low. 
 

Page 50 GAO-12-886 Financial Stability Entities

earnings but says it does not see evidence of this now. Threats that 

emerged during the crisis or those that are currently evident likely require 

different and perhaps more immediate responses than those that are 

potentially emerging. The comingling of well-known risks with risks that 

are developing, but less well-known, reduces the ability of policymakers 

and market participants to develop effective and timely responses for the 

latter.

Further, the FSOC process for identifying threats limits its ability to 

explicitly prioritize the large number of threats identified. The 2011 report 

includes over 30 threats without explicitly specifying which are most 

important. The 2012 report also includes a lengthy list of threats without 

explicit prioritization. In contrast, other entities, such as the International 

Monetary Fund and European Central Bank, issue reports that explicitly 

prioritize potentially significant threats. Treasury and FSOC officials and 

staff noted that FSOC’s Annual Reports have a different purpose and 

implicitly prioritize the threats in the recommendations sections of the 

reports. For example, they noted that the recommendation for money 

market funds—a threat included in the potentially emerging section—

notes that the vulnerabilities associated with money market funds are a 

particular focus of FSOC. They contrasted this recommendation with 

other recommendations, such as those related to the low interest rate 

environment that notes that regulators and industry should adopt certain 

practices to help monitor the situation. However, the lack of a systematic 

process that explicitly prioritizes potential emerging threats leaves 

policymakers without the information they need to focus on or allocate 

scarce resources to the most important threats.

The 2007-2009 financial crisis highlighted how the nation’s fragmented 

regulatory structure was not equipped to monitor and address risks 

across the financial system, nor did it have the needed information to 

facilitate that oversight. To address this weakness, Congress created 

FSOC and OFR to improve the U.S. government’s ability to identify and 

respond to future threats to financial stability. This is a daunting task, and 

one that is made more challenging as FSOC and OFR must concurrently 

stand-up organizations and establish a sense of collective accountability 

among the independent regulators and other members.

Successfully implementing their mandates will require FSOC members to 

actively work together and with external stakeholders. Appropriate 

accountability and transparency mechanisms also need to be established 

to determine whether FSOC and OFR are effective and to ensure that the 

Conclusions 
 

Page 51 GAO-12-886 Financial Stability Entities

public and Congress have sufficient information to hold the entities 

accountable for results. Over the last 2 years, FSOC and OFR have 

made progress on these fronts. Staff from FSOC member agencies told 

us that the level of collaboration and communication among the agencies 

has increased since the creation of FSOC and that such collaboration has 

resulted in more information sharing and diverse perspectives being 

considered. OFR has also made contributions to international efforts, 

such as coordinating U.S. input on the Legal Entity Identifier, to enhance 

governments’ abilities to track financial activity.

While FSOC and OFR have made some progress, continued efforts to 

improve the entities’ accountability, transparency, and collaboration are 

needed. As we have seen, for example:

• OFR issued a strategic framework in March 2012 that covered the 

period fiscal years 2012-2014. This represented an important step for 

the new agency in adopting leading practices in performance 

management. The framework identifies OFR’s strategic goals, 

highlights a number of objectives under those goals, and lays out 

implementation priorities for the first year covered by the document. 

However, as OFR acknowledges, the framework does not include key 

elements of a performance management system, such as linking 

programmatic, human resources, and budgetary decision making to 

its strategic goals and developing performance measures. OFR 

expects to communicate progress on these key elements when it 

provides a new human resources plan to Congress in September 

2012 and in its fiscal year 2014 budget submission. Moving forward, 

transforming its framework into a comprehensive strategic planning 

and performance management system can provide the agency with a 

long-term vision and allow others to hold it accountable which will be 

critical for OFR.

• The critical role of monitoring threats to financial stability and 

responding to emerging threats also needs to be further developed. 

Potential threats to financial stability are discussed at FSOC meetings 

and FSOC has established a Systemic Risk Committee to facilitate 

coordination among members’ staffs, including member agencies that 

often have their own groups devoted to risk analysis. In addition, OFR 

is evaluating a variety of potential tools for assessing financial stability 

and studying methods to improve stress tests. Collectively, these 

efforts remain incomplete. The approach of the Systemic Risk 

Committee can help FSOC analyze known risks but does not take full 

advantage of FSOC member agency resources to identify new threats 
 

Page 52 GAO-12-886 Financial Stability Entities

to the financial system. Without more systematic and comprehensive 

mechanisms, including comprehensive sharing of key financial risk 

indicators, risks to financial stability may develop in the system 

without being recognized.

• FSOC and OFR have attempted to be transparent with some of their 

decision making and activities. FSOC, for instance, posts the minutes 

from its meetings and other key documents on Treasury’s website, 

and it provided insight into its designations processes through multiple 

rulemakings and comment periods as well as by providing additional 

information on the designation of FMUs in its 2012 Annual Report. 

OFR also posted some information on Treasury’s website and 

provided information on a wide range of OFR activities and research 

in its first annual report issued in July 2012. As we found, however, 

both FSOC and OFR could be more transparent. For example, 

FSOC’s minutes contain limited details about the council’s discussion 

and the amount of detail included in the minutes has declined over 

time. While some information discussed must remain confidential 

given potential market sensitivities, legal restrictions on sharing 

certain information, and the need for members to deliberate, striving 

to be as transparent as possible given the potential impact of some of 

its decisions on institutions and markets is important for FSOC. 

FSOC’s and OFR’s limited transparency has caused some former 

government officials, industry representatives, and academics to 

question whether they are making progress. Continued efforts to 

increase transparency will allow the public and Congress to better 

understand FSOC’s and OFR’s decision making, activities, and 

progress.

• FSOC and OFR have taken some steps to encourage collaboration, 

such as FSOC setting up standing committees composed of 

members’ staffs and OFR beginning to establish a professional and 

technical advisory committee. However, more needs to be done to 

promote collaboration—both among FSOC members and between 

FSOC and external stakeholders. For example, FSOC has not yet set 

up advisory committees, and OFR and FSOC have not yet clarified 

their responsibility for implementing statutory requirements for 

monitoring and reporting on threats to U.S. financial stability, including 

the responsibilities of member agencies. More fully incorporating the 

key practices for successful collaboration, including agreeing on roles 

and responsibilities and establishing reinforcing or joint strategies, 

could make FSOC’s and OFR’s existing collaboration efforts more 

effective. Effective collaboration could eliminate unnecessary 

duplication for both the industry and regulators. In addition, it could 
 

Page 53 GAO-12-886 Financial Stability Entities

help to fill regulatory gaps so that risks would not migrate to 

unregulated markets or countries as they did prior to the 2007-2009 

financial crisis.

• One of FSOC’s most significant actions, to date, has been finalizing 

its rules for designating FMUs and nonbank financial companies for 

additional oversight. The Congress intended that the enhanced 

supervision of those entities designated would lead to greater financial 

stability. In addition, the designations will likely have other important 

ramifications for the designated entities—which will become subject to 

a number of other rules and regulations—and potentially the nation’s 

economy. While FSOC must periodically reevaluate the nonbank 

financial company designations and intends to review the thresholds 

for stage one of the nonbank financial company process at least every 

5 years, it is not required to conduct a comprehensive assessment to 

determine whether the designations are having their intended impact 

of improved financial stability as well as other consequences. 

Establishing a baseline and developing a framework to 

comprehensively assess the impact of the designations will be difficult 

because of the number of independent regulators involved. But, 

without such an analysis, Congress, the affected institutions, the 

public, and FSOC cannot determine whether the designations and 

associated oversight is actually helping to improve financial stability.

• While FSOC’s annual reports identify a number of potential emerging 

threats to the nation’s financial stability, they do not use a systematic 

forward-looking approach to identify such threats. Thus, some threats 

may not be identified consistently or at all. Threats such as those 

associated with the long term U.S. debt appear in FSOC’s 2012 

Annual Report but had not appeared in FSOC’s 2011 Annual Report 

and there was no explanation for the change. The reports are also not 

forward-looking in that many of the identified threats, such as those 

associated with money market funds or the European debt crisis, will 

not potentially emerge but rather emerged during the 2007-2009 

financial crisis or more recently. Finally, the reports do not explicitly 

prioritize the emerging threats relying instead on a careful reading of 

the recommendations to determine which are critical. In addition, 

these recommendations do not consistently identify which member 

agency or agencies are recommended for implementing or monitoring 

the council’s recommendations. The lack of this information makes 

determining which well-recognized threats require immediate action, 

which potential emerging threats are most likely to have severe 

outcomes, and how best for decision makers to address the differing 

threats. Finally, it does not allow Congress to hold FSOC accountable 
 

Page 54 GAO-12-886 Financial Stability Entities

for identifying potential emerging threats or implementing the 

recommendations. 

Whether FSOC and OFR fundamentally change the way the federal 

government monitors threats to financial stability remains an open 

question. This is due, in part, to the newness of the entities, as both 

continue to develop needed management structures. But limits to FSOC’s 

and OFR’s transparency also contribute to questions about their 

effectiveness. Addressing the issues we have identified will help FSOC 

and OFR shed more light on their decision making and activities and 

allow Congress to hold them accountable for results. Moreover, 

addressing these issues can help FSOC and OFR to further promote 

collaboration among FSOC’s members and with external stakeholders, 

which is critical to their ability to achieve their missions. If they do not 

succeed in achieving their missions the financial system will remain 

vulnerable to large or multiple shocks that could result in large losses in 

asset values, higher unemployment, and slower economic growth 

associated with previous financial crises.

While FSOC and OFR have made progress in establishing their 

operations and approaches for monitoring threats to financial stability, 

developing accountability and transparency mechanisms, and enhancing 

collaboration among the financial regulatory agencies, these efforts could 

be strengthened. Therefore, we are recommending that the Secretary of 

the Treasury take 10 actions—some in his capacity as the Chairperson of 

FSOC, in consultation with FSOC members, and in his leadership role for 

OFR, which does not yet have a confirmed director.

We recommend that FSOC and OFR clarify responsibility for 

implementing requirements to monitor threats to financial stability across 

FSOC and OFR, including FSOC members and member agencies, to 

better ensure that the monitoring and analysis of the financial system are 

comprehensive and not unnecessarily duplicative.

As FSOC continues to develop approaches for monitoring threats to 

financial stability, we recommend that FSOC develop an approach that 

includes systematic sharing of key financial risk indicators across FSOC 

members and member agencies to assist in identifying potential threats 

for further monitoring or analysis.

To improve the transparency of FSOC and OFR operations, we 

recommend that FSOC and OFR each develop a communication strategy 

Recommendations for 

Executive Action
 

Page 55 GAO-12-886 Financial Stability Entities

to improve communications with the public. The strategy could include 

using technology more effectively to communicate, such as having fully 

developed websites, sending regular notices to interested parties, and 

developing methods to communicate with the public.

To support the growth of OFR into a viable and sustainable entity, we 

recommend that OFR build on its strategic framework by further 

developing its strategic planning and performance management system 

so that it links its activities to its goals and uses publicly available 

performance measures to measure its progress.

To strengthen accountability and collaboration in FSOC’s decision 

making, we recommend that FSOC take the following six actions:

• Keep detailed records (for example, detailed minutes or transcripts) of 

closed door sessions of principals meetings and to the extent possible 

make them publicly available after an amount of time has passed 

sufficient to avoid the release of market-sensitive information or 

information that would limit deliberations.

• Establish formal collaboration and coordination policies that clarify 

issues such as when collaboration or coordination should occur and 

what role FSOC should play in facilitating that coordination.

• More fully incorporate key practices for successful collaboration that 

we have previously identified. Internally, this could include working 

with agencies to rationalize schedules for rulemakings and conducting 

collaborative system-wide stress testing. Externally, this could include 

using professional and technical advisors including state regulators, 

industry experts, and academics.

• Establish a collaborative and comprehensive framework for assessing 

the impact of its decisions for designating FMUs and nonbank 

financial companies on the wider economy and those entities. This 

framework should include assessing the effects of subjecting 

designated FMUs and nonbank financial companies to new regulatory 

standards, requirements, and restrictions; establishing a baseline from 

which to measure the effects; and documenting the approach.

• Develop more systematic forward-looking approaches for reporting on 

potential emerging threats to financial stability in annual reports. Such 

an approach should provide methodological insight into why certain 

threats to financial stability are included or excluded over time, 
 

Page 56 GAO-12-886 Financial Stability Entities

separate current or past threats from those that are potentially 

emerging, and prioritize the latter.

• Make recommendations in the annual report more specific by 

identifying which FSOC member agency or agencies, as appropriate, 

are recommended to monitor or implement such actions within 

specified time frames.

We provided a draft of this report to the Secretary of the Treasury—as the 

Chairperson of FSOC and in his leadership role for OFR—for review and 

comment. Treasury’s Under Secretary for Domestic Finance, on behalf of 

the Chairperson of FSOC, provided written comments, which are 

reprinted in appendix III. Treasury also provided technical comments on 

the draft report, which we incorporated as appropriate. Treasury solicited 

views from staff of the FSOC members and member agencies on the 

draft report and reflected these views in the comments provided to us. 

In their written comments, Treasury emphasizes the progress that FSOC 

and OFR have made since their creation. For example, Treasury 

highlights FSOC’s work in issuing a final rule and guidance relating to the 

designation of nonbank financial companies for enhanced supervision 

and designating eight systemically important FMUs that will be subject to 

enhanced risk management standards. Treasury also highlights OFR’s 

progress in building its organization and analytical capabilities, including 

the launch of OFR’s working paper and seminar series for research on 

financial stability and risk management. Treasury also outlines efforts 

FSOC and OFR have taken to promote transparency and accountability, 

including testifying before Congress, responding to requests for 

information from oversight bodies, conducting voluntary rulemakings, or 

making information available on websites. In addition, Treasury also 

emphasizes that the progress that each entity has made to date should 

be viewed with the understanding that both entities are relatively new.

Nevertheless, Treasury recognizes that more work remains. In the report, 

we also describe FSOC’s and OFR’s efforts, to date, in fulfilling their 

statutory responsibilities and efforts to promote accountability and 

transparency. The report also notes that both entities were established in 

2010.

In its letter, Treasury states that officials will carefully consider the report’s 

findings and recommendations. Treasury further notes that the Secretary, 

in his role as Chairperson, will share the recommendations with the 

Council for their review and consideration. Treasury also offers initial 

Agency Comments 

and Our Evaluation
 

Page 57 GAO-12-886 Financial Stability Entities

reactions to several of our recommendations. First, regarding our 

recommendation that FSOC and OFR should clarify their responsibilities 

for monitoring threats to financial stability, Treasury states that there is no 

existing confusion or overlap of responsibilities. Furthermore, Treasury 

states that both organizations are working together to pursue their 

distinct, but complementary, statutory missions, and cites OFR’s efforts to 

develop the Financial Stability Monitor, a collection of indicators related to 

financial stability that Treasury expects will be shared with FSOC 

members. In the report, we point out that Congress gave both FSOC and 

OFR responsibilities for monitoring systemic risk—responsibilities that 

both entities must fulfill. We also highlight that multiple FSOC members, 

such as the Federal Reserve, also have ongoing efforts to monitor threats 

to financial stability. The report does not suggest that any overlap 

between these efforts currently exist. Rather, the report recommends that 

these similar statutory responsibilities and ongoing efforts should be 

clarified and carefully coordinated. While Treasury notes that no 

confusion or overlap currently exists, our past work has shown that 

without clearly delineating and coordinating roles and responsibilities 

there can be duplication of efforts, confusion, and regulatory gaps. In 

addition, the report notes the importance of a systematic and 

comprehensive approach to identifying threats to financial stability. While 

OFR’s Financial Stability Monitor could be a vehicle for sharing key 

financial risk indicators, it does not yet reflect a comprehensive 

interagency effort to collect and share indicators related to financial 

stability.

Second, Treasury states that it expects FSOC will consider the effects on 

the financial system resulting from designation in its periodic 

assessments in response to our recommendation that FSOC develop a 

framework for assessing the impact of its decisions for designating FMUs 

and nonbank financial companies on the wider economy and those 

entities. The Dodd-Frank Act requires FSOC to periodically review the 

designation of nonbank financial companies, and FSOC intends to 

periodically review FMU designations. However, FSOC is not currently 

required to examine the potential economic impact of the designations. In 

our report, we detail the types of benefits and costs that individually 

designated firms, as well as the economy at large, may experience as a 

result of the designations. Given the potential magnitude of these benefits 

and costs of the designations, a comprehensive assessment of their 

impact is warranted.

Third, Treasury agrees that OFR should implement a robust strategic 

planning and performance management system as the office grows.
 

Page 58 GAO-12-886 Financial Stability Entities

Treasury describes OFR’s past and ongoing efforts on this front, 

highlighting, for example, OFR’s March 2012 strategic framework. In the 

report, we note that the strategic framework was an important first step for 

OFR, and we also describe OFR’s efforts to develop an independent 

strategic planning and performance system, including performance 

measures, and time lines for publicly releasing this information. We 

acknowledge OFR’s efforts in continuing to develop the elements 

required for a strategic plan and performance management system and 

will review this information when it is publicly released.

Finally, Treasury notes our recommendation regarding OFR’s 

communications strategy is consistent with the office’s ongoing efforts.

The letter describes OFR’s efforts to improve communication and notes 

that FSOC’s website is being redesigned to improve usability and 

navigation. The report also recognizes OFR’s recent efforts to improve 

their communication methods, such as the recent capability OFR added 

to its website enabling the public to sign up for email alerts on recent OFR 

activities.

As agreed with your office, unless you publicly announce the contents of 

this report earlier, we plan no further distribution until 30 days from the 

report date. At that time, we will send copies of this report to interested 

congressional committees and members, the Secretary of the Treasury, 

and other members of FSOC. The report also is available at no charge on 

the GAO website at http://www.gao.gov.

If you or your staffs have any questions about this report, please contact 

A. Nicole Clowers at (202) 512-8678 or clowersa@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.

A. Nicole Clowers

Director

Financial Markets and Community Investment
Appendix I: Objectives, Scope, and 

Methodology

Page 59 GAO-12-886 Financial Stability Entities

The objectives of this report are to examine the Financial Stability 

Oversight Council’s (FSOC) and Office of Financial Research’s (OFR) (1) 

challenges in fulfilling their missions; (2) efforts in establishing 

management structures and mechanisms to carry out their missions and 

attain their goals; and (3) activities for supporting collaboration among 

members and external stakeholders, including international bodies and 

regulators; as well as (4) FSOC’s processes used to issue rules and 

reports.

To identify and examine any challenges faced by FSOC and OFR, we 

reviewed our prior reports on regulatory reform and the financial crisis. 

We also reviewed statements of government officials, members of 

Congress, and academic experts. In addition, we interviewed FSOC 

policy staff and support staff of FSOC members, including staff and 

officials at member regulatory agencies. At OFR, we interviewed senior 

officials and some staff members.

To examine FSOC’s and OFR’s efforts in establishing management 

structures and mechanisms to carry out their missions, we reviewed the 

Dodd-Frank Wall Street Reform and Consumer Protection Act (DoddFrank Act), FSOC’s bylaws and organizational structure (including its 

committee structure), and OFR’s strategic framework. We reviewed 

minutes from FSOC’s principals’ meetings (i.e., the meetings with the 

designated FSOC members, many of whom are heads of regulatory 

agencies), and we reviewed the minutes from the Federal Reserve’s 

Federal Open Markets Committee and the United Kingdom Interim Policy

Committee meetings for comparison purposes. We also examined the 

entities’ fiscal years 2012 and 2013 budget requests, budgetary and 

staffing data, and congressional testimonies. We assessed the reliability 

of OFR’s staffing data by comparing the data provided with information 

contained in the President’s budget for fiscal year 2013 and FSOC 

testimony in April 2011. We also tested the data for consistency over 

time. We determined the data were sufficiently reliable for our purposes. 

To understand the steps OFR is taking to protect the sensitive data it 

collects, we interviewed OFR officials with knowledge of data security 

efforts, reviewed the OFR strategic framework, and reviewed 

Congressional testimony provided by OFR. In addition, we reviewed the 

Department of the Treasury Inspector General reports on the stand-up of 

OFR and the Consumer Financial Protection Bureau. We used criteria 

from Standards for Internal Control in the Federal Government, our past 

work on the stand-up of federal entities, such as the Millennium 

Challenge Corporation, and managing for results to evaluate FSOC and 

OFR management structures and mechanisms, including their need for 

Appendix I: Objectives, Scope, and 

Methodology 
Appendix I: Objectives, Scope, and 

Methodology

Page 60 GAO-12-886 Financial Stability Entities

strategic planning and performance measures. We reviewed selected 

academic literature on tools used or proposed to identify potential threats 

to financial stability by entities that write financial stability reports, 

including the European Central Bank, Bank of England, and International 

Monetary Fund, and others, including the Institute for International 

Finance and Pew Financial Reform Project. We also attended FSOC’s 

and OFR’s December 2011 conference entitled Macroprudential Toolkit: 

Measurement and Analysis. We interviewed some FSOC members; 

officials from FSOC federal regulatory agencies whose heads are 

members of FSOC (member agencies); support staff of other FSOC 

members; FSOC, OFR, and other Treasury officials and staff; and 

academics who have published research related to systemic risk and 

worked on financial stability reports.1

To determine how FSOC and OFR support collaboration, we reviewed 

our criteria for effective collaboration and compared it to FSOC and OFR 

policies and practices. We analyzed the Dodd-Frank Act requirements for 

collaboration, FSOC’s transparency policy, hearing procedures, DoddFrank Act integrated implementation roadmap, and memorandum of 

understanding on information sharing. We also reviewed FSOC’s 

products, such as the 2011 Annual Report, and interviewed FSOC staff 

and officials from FSOC member agencies and some FSOC member 

support staff to determine how FSOC members collaborate, including 

how they participate in the drafting of the products. To determine how 

collaboration practices among and between domestic and international 

financial regulators have changed since the creation of FSOC, we 

reviewed FSOC, OFR, and some member agencies’ congressional 

testimony and reports from international bodies, such as the Financial 

Stability Board. Finally, we interviewed representatives from industry 

trade groups, government officials in the United Kingdom, and experts 

We also coordinated with the 

Treasury Office of Inspector General and the Council of Inspectors 

General on Financial Oversight regarding their ongoing audits of FSOC 

and OFR.

 

1

Along with their FSOC support staff, we interviewed the Independent Member with 

Insurance Expertise, the State Insurance Commissioner, and the State Securities 

Commissioner. We also interviewed the Conference of State Banking Supervisors staff 

supporting the State Banking Supervisor member, but not the member himself. For those 

members who are heads of federal agencies, we generally held interviews with senior 

agency officials, but not with the FSOC principal member. We did not interview anyone at 

the Federal Insurance Office but did provide them with an opportunity to provide their

views and arrange an interview, if needed. 
Appendix I: Objectives, Scope, and 

Methodology

Page 61 GAO-12-886 Financial Stability Entities

from the European Union. We selected individuals from the United 

Kingdom and European Union because those entities have experience 

working with U.S. federal financial regulators and councils designed to 

enhance financial stability. 

To examine the process and procedures FSOC and OFR used in issuing 

products, we analyzed FSOC rules or reports issued before July 2012 

including FSOC’s 2011 and 2012 Annual Reports. We analyzed the 

content of public comments on three proposed rules to examine how 

FSOC addressed them in the final rules. We also reviewed 

documentation on the process FSOC staff used to document and address 

comments from member agencies on the 2011 Annual Report. In 

addition, we examined the analyses and other materials provided to 

FSOC members prior to their meetings, including material to be 

presented at the meetings dating from October 2010 through December 

2011 and selected documents thereafter through March 2012. We 

interviewed officials from FSOC member agencies, FSOC and OFR 

policy staff who had responsibility for contributing to the products within 

our scope, academics who have published research related to systemic 

risk, and industry or trade groups who submitted comments on a number 

of FSOC rules and reports. Finally, using testimonial and documentary 

evidence, we compared FSOC’s rulemaking process, rules, and reports 

with key practices identified in our prior work on rulemaking and standard 

economic practice, where applicable.

2

We conducted this performance audit from November 2011 to September

2012 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.

 

2

GAO, Dodd-Frank Act Regulations: Implementation Could Benefit from Additional 

Analyses and Coordination, GAO-12-151 (Washington, D.C.: Nov. 10, 2011). 
Appendix II: Standing Committees of the 

Financial Stability Oversight Council

Page 62 GAO-12-886 Financial Stability Entities

FSOC has established seven standing committees. The committees and 

brief descriptions are listed 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. 

Treasury chairs this committee.

• Systemic Risk Committee: Includes senior staff and reports to the 

Deputies Committee. The committee is accountable for systemic risk 

monitoring and will play a role in prioritizing the review of sources of 

systemic risk and guiding the work of staff and the systemic risk 

subcommittees. Treasury chairs this committee. It has two 

subcommittees.

• Institutions Subcommittee: Focuses on identifying and analyzing 

issues that affect financial institutions in the medium and longer 

term. It also attempts to identify structural issues within financial 

institutions that could threaten financial stability, such as trends in 

leverage or funding structure, new products, or exposures to 

particular risks. The Board of Governors of the Federal Reserve 

(Federal Reserve) and the Federal Deposit Insurance Corporation 

(FDIC) chair this subcommittee.

• Markets Subcommittee: This subcommittee focuses on identifying 

and analyzing issues that affect financial markets in the medium 

and longer term, including structural issues within financial 

markets that could threaten financial stability, such as trends in 

volatility or liquidity, market structure, or asset valuations. The 

Commodity Futures Trading Commission (CFTC) and Securities 

and Exchange Commission (SEC) chair this committee.

• Designation of Nonbank Financial Companies Committee: Supports 

FSOC in considering, making, and reviewing designations of nonbank 

financial companies to be supervised by the Federal Reserve. The 

Federal Reserve and FDIC chair this committee.

• Designation of Financial Market Utilities Committee: Supports FSOC 

in considering, making, and reviewing designations of financial market 

utilities and payment, clearing, and settlement activities. The Federal 

Reserve, SEC, and CFTC chair this committee.

• Heightened Prudential Standards Committee: Supports FSOC in 

making recommendations for heightened prudential standards with 

Appendix II: Standing Committees of the 

Financial Stability Oversight Council
Appendix II: Standing Committees of the 

Financial Stability Oversight Council

Page 63 GAO-12-886 Financial Stability Entities

respect to designated nonbank financial companies and large, 

interconnected bank holding companies, and with respect to other

financial activities and practices that could impact financial stability. 

This committee also supports FSOC’s authorities for monitoring 

regulatory developments, facilitating information sharing, 

recommending supervisory priorities and principles, and identifying 

gaps in regulation that could pose risks. The Federal Reserve and the 

Office of the Comptroller of the Currency chair this committee.

• Orderly Liquidation Committee: Supports any FSOC 

recommendations on resolution plan requirements, consideration of 

filed resolution plans, and consideration of FDIC and Federal Reserve 

proposed orders to require divestiture; and consults with FSOC on 

rulemakings to implement the Title II orderly liquidation authority. 

FDIC and Treasury chair this committee.

• Data Committee: Supports FSOC coordination of, and consultation 

on, agency rulemakings on data collection, and seeks to minimize 

duplication of data gathering operations. The committee supports a 

coordinated approach to information sharing and provides direction to, 

and requests data from, the Office of Financial Research (OFR). 

Additionally, the committee works with OFR on data standardization 

efforts. Treasury chairs this committee.
Appendix III: Comments from the Department 

of the Treasury

Page 64 GAO-12-886 Financial Stability Entities

Appendix III: Comments from the 

Department of the Treasury
Appendix III: Comments from the Department 

of the Treasury

Page 65 GAO-12-886 Financial Stability Entities
Appendix III: Comments from the Department 

of the Treasury

Page 66 GAO-12-886 Financial Stability Entities
Appendix IV: GAO Contact and Staff 

Acknowledgments

Page 67 GAO-12-886 Financial Stability Entities

A. Nicole Clowers, (202) 512-8678 or clowersa@gao.gov

In addition to the contact named above, Kay Kuhlman (Assistant 

Director), Holland Avery, Nancy Barry, Emily Chalmers, Rudy Chatlos, 

Rachel DeMarcus, Christopher Forys, Michael Hoffman, Marc Molino, 

Susan Sawtelle, Rachel Siegel, and Henry Wray made significant 

contributions to this report. Other assistance was provided by Janet 

Eackloff and David Martin.

Appendix IV: GAO Contact and Staff 

Acknowledgments 

GAO Contact

Staff 

Acknowledgments 

(250637)
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.