FSOC reports on NBFIs

Federal Issues FSOC Department of Treasury Nonbank

On February 4, the Financial Stability Oversight Council (FSOC) released a statement regarding nonbank financial intermediation. According to the statement, FSOC received updates on progress over the past year regarding three types of nonbank financial institutions (NBFIs), which include hedge funds, open-end funds, and money market funds (MMF). The statement noted that FSOC reestablished its Hedge Fund Working Group in 2021, with the primary objective of providing updates to FSOC’s “assessment of potential risks to U.S. financial stability from hedge funds, their activities, and their interconnections with other market participants.” FSOC “supports the Hedge Fund Working Group’s recommendation that the Office of Financial Research (OFR) consider ways to obtain better data on the uncleared bilateral repurchase agreement market, an important source of leverage for hedge funds.” In 2021, FSOC also established an interagency staff-level Open-end Fund Working Group, which assessed potential risks to U.S. financial stability arising from open-end funds. FSOC noted that it “supports the Open-end Fund Working Group’s continued analysis of the potential risks to financial stability that may arise from liquidity transformation at open-end funds.” In respect to MMF, FSOC noted that it supports the SEC’s efforts to reform MMFs and strengthen short-term funding markets.