In 2010, the Dodd Frank Wall Street Reform and Consumer Protection Act ( P.L. 111-203 , 124 Stat 1394), also known as the Dodd-Frank Act (DFA), established a new regulatory framework to address financial market instability. Included in that framework was the creation of the Financial Stability Oversight Council (FSOC), which is composed of the heads of the agencies that regulate financial institutions and markets. Table 1 lists the member agencies. The FSOC has its own permanent staff in the newly created Office of Financial Research (OFR) that collects data on the financial system and provides information and technical expertise to the FSOC. OFR is housed within the Department of the Treasury, although it is funded separately. The FSOC is expected to facilitate communication among existing financial regulators intending to identify sources of financial instability that cross agency regulatory jurisdiction, or that reside in gaps in the financial regulatory framework. Congressional staff may be interested in the organization, actions, and assessments of the FSOC, especially if a systemic financial event were to occur, a covered non-bank financial institution were to fail, and when the Secretary of the Treasury offers testimony to Congress (which is required at least once per year when the annual report is released). The FSOC was created to address some of the perceived regulatory weaknesses that may have contributed to the magnitude of the financial crisis of 2008. These perceived weaknesses included identification of risks to the financial system as a whole; lack of coordination among financial regulators; inadequate supervision of large, complex financial institutions; and instabilities that might result from the failure or bankruptcy of a non-bank financial institution. The FSOC provides a common forum for financial regulators to evaluate and address risks to the stability of the financial system, including systemic risks that might emanate from less regulated non-bank financial institutions. The FSOC has the ability to classify (or "designate" as used in the law and this report) certain non-banks as systemic, and therefore subject to prudential supervision by the Federal Reserve (the Fed). Systemic firms with more than $50 billion in assets must also provide and maintain resolution plans (so-called living wills), which must be jointly approved by the Fed and the Federal Deposit Insurance Corporation (FDIC). The DFA establishes a regulatory framework of which the FSOC is a consultative council. The new regulatory regime has six basic policy tools with which to pursue its mission. 1. Coordination. The council facilitates communication among the heads of financial regulators. 2. Data collection and evaluation . The FSOC has a permanent staff with the ability to gather confidential financial information and the staff of the OFR are to be experts in the financial field. 3. Prudential regulation of certain non-banks . The FSOC establishes the criteria and designates which firms will be subject to additional prudential regulation by the Fed, including capital requirements, asset tests, and similar safety and soundness regulations. 4. Safety and Soundness Regulation of certain Financial Market Utilities . The FSOC establishes the criteria and designates which financial market utilities be subjected to safety and soundness regulation. An example of a financial market utility would be an organization that provides settlement and clearing services. 5. Resolution of non-banks. Upon a determination of a threat to financial stability, a covered non-bank in danger of failing may under certain conditions be resolved by the FDIC rather than through the bankruptcy process. 6. Evaluation of rules for consumer financial protection. The FSOC may set aside some financial regulations for consumers if the rules might cause systemic risk, under certain circumstances. The distinction between depository banks and non-bank financial firms is important to understanding the FSOC because many of the new powers attempt to create a regulatory and resolution regime for non-banks that is similar to the way depository banks are handled. The term bank , in this context, generally refers to financial institutions with bank, thrift, or credit union charters that offer loans and raise a large proportion of their funds through insured deposits. Insured depository banks have prudential regulators who monitor their assets and liabilities, including the ability to prevent concentrations in particular types of loans or reliance on particular funding sources. Prudential regulators of banks coordinate through the Federal Financial Institutions Examinations Council (FFIEC). Resolution of failing depository banks is done administratively by the FDIC (or NCUA for credit unions), not through the bankruptcy courts. Banks generally have access to liquidity facilities, such as the Federal Reserve discount window. The term non-bank refers to financial institutions that offer loans or other sources of capital, but do not have a bank charter and do not rely on deposits for their own funding. Prior to the financial crisis of 2008, investment banks, such as Bear Stearns and Lehman Brothers, were examples of large, complex, non-bank financial institutions, even though in some cases they may have had relatively small subsidiaries that accepted deposits (technically "thrifts"). The insurance company American International Group (AIG) is another example of a large non-bank financial institution that had a relatively small subsidiary that accepted deposits. Authority to regulate non-bank thrifts and their holding companies had resided in the Office of Thrift Supervision (OTS). Some non-banks accepted prudential regulation by the Securities and Exchange Commission (SEC). Bankruptcy courts were to handle failures among most non-banks, and non-bank subsidiaries of banks. The government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac, are large, complex financial institutions that did not accept deposits, but had their own prudential regulatory regime under the Office of Federal Housing Enterprise Oversight (now the Federal Housing Finance Agency, or FHFA). As then-Federal Reserve Governor Donald Kohn evaluated lessons from the financial crisis, "We [the Fed] traditionally have provided backup liquidity to sound depository institutions. But in the crisis, to support financial markets, we had to provide liquidity to non-bank financial institutions as well." In common parlance, people have sometimes referred to "too-big-to-fail" firms (TBTF), but what is typically meant are complex and interconnected financial institutions that may not rely on deposits for a large share of their funding, and whose failure may spread and magnify losses throughout the financial system—rather than absolute firm size. Governor Kohn expressed frustration for the perceived inadequacy of existing tools to deal with TBTF non-banks. Dissatisfaction with existing regulation grew with the progression of the mortgage crisis that began in August 2007, especially following extraordinary government support related to the failure of several large non-banks. Some of this support was designed to prevent some creditors of failing non-banks from protracted uncertainty in the bankruptcy courts or other resolution process. Similarly, for some qualified financial contracts, support may have been designed so that some creditors would not suffer losses in the bankruptcy process. For example, in March 2008, losses on mortgage-related securities caused the distress sale of investment bank Bear Stearns. The Fed provided financial support for the purchase of Bear Stearns by JPMorgan, avoiding the bankruptcy courts. In July 2008, the GSEs, Fannie Mae and Freddie Mac, had trouble raising additional capital. Policymakers tried unsuccessfully to enhance investor confidence by pledging financial support for the GSEs. Despite this pledge, in September 2008, Fannie Mae and Freddie Mac were placed in conservatorship with explicit financial support from Treasury. Lehman Brothers failed shortly thereafter, and declared bankruptcy when no firm was willing to purchase the investment bank without additional public support, which was not forthcoming. AIG, one of the world's largest insurers, would have failed the day after Lehman Brothers. However, the Fed subsequently intervened on behalf of AIG, in this case avoiding a bankruptcy process. Following the declaration of bankruptcy by Lehman Brothers, financial panic spread to other non-bank institutions and markets, with runs on money market mutual funds and repurchase agreements (also known as "repos"). Treasury offered a temporary guarantee program for money market mutual funds. In fall of 2008, Congress provided Treasury with up to $700 billion to address troubled assets (such as mortgages) in the financial system. Despite these interventions to recapitalize and restore confidence in financial institutions, damage to the broader economy (as measured by unemployment and lost output) was severe. Congress passed the DFA to reform the financial regulatory system. For banks that accept deposits insured by the FDIC, technically "insured depositories," the general prudential regulatory approach and resolution regimes were relatively unchanged, although two regulators of depositories were combined. For large, complex non-banks, the DFA instructs the FSOC to identify which firms are systemically important, designates the Fed as the prudential regulator of these firms, and authorizes the FDIC to resolve covered non-banks outside the bankruptcy courts under certain circumstances. Under the DFA, policymakers have tried to construct resolution regimes for both banks and non-bank financial firms that will dispel investor expectations that some firms are too big to fail (i.e., that policymakers will be unwilling to let the firms fail because of potential collateral damage caused by resorting to the bankruptcy process). The following sections provide more detail on the mission, members, and recommendations of the FSOC during the 113 th Congress. This report will discuss the FSOC's mission and issues it is intended to address in Section I, and the members and their roles in Section II. Section III will analyze the perceived threats to financial stability as identified in law and by the FSOC in its 2013 annual report. Section 112 of DFA lists three purposes of the FSOC: (1) identify risks to the financial system that may arise from large, complex financial institutions; (2) promote market discipline by reducing expectations of federal financial support for failing institutions; and (3 ) respond to emerging threats to the stability of the U.S. financial system.