WASHINGTON— The Financial Stability Oversight Council on Wednesday unanimously approved proposed guidance that would make it harder to designate nonbank financial companies for enhanced Federal Reserve supervision, restoring a more restrictive framework that places a strong emphasis on addressing risky activities across markets before singling out individual firms, according to American Banker and the Treasury Department.
The proposal would replace Biden-era 2023 guidance and largely return to the approach first advanced during the Trump administration in 2019.
Under the proposal, FSOC would prioritize an “activities-based approach,” meaning it would first look to identify and mitigate systemic risks through existing regulators rather than move directly to designating a specific nonbank firm as systemically important. Treasury’s FSOC designations page said the council on March 25 approved a notice of proposed interpretive guidance and request for public comment, while American Banker reported Treasury official Christina Parajon Skinner said firm-specific designation under Section 113 of Dodd-Frank would be used only if a broader risk “cannot be or is not adequately addressed” through that activities-based process.
American Banker reported the proposal also would merge FSOC’s analytical framework and designation procedures into a single guidance document, restore a formal cost-benefit analysis and require the council to weigh both the likelihood of a firm’s financial distress and the degree to which that distress could spread through the broader system. Skinner said the proposal sets a “very high” threshold for designation, with the standard defined as a threat severe enough to impair financial intermediation or market functioning to the point of causing serious damage to the broader U.S. economy.
The move continues a policy shift signaled in FSOC’s 2025 annual report, which said the council intended to revisit its nonbank designation guidance, and comes more than a decade after the last new nonbank designation. Treasury records show no nonbank financial companies are currently subject to a final Section 113 determination or under review, while American Banker noted the last firm designated was MetLife in 2014, before that designation was successfully challenged in court and ultimately abandoned.