In response to the recent banking crisis, the United States Treasury and a number of leading financial regulators are working together to tighten the rules around nonbank entities. These entities, such as venture capital funds, cryptocurrency companies and hedge funds, do not fall under the purview of the Federal Deposit Insurance Corporation and thus do not benefit from the same protections as traditional banking institutions.

In an effort to create a more efficient and effective supervisory framework, the Financial Stability Oversight Council recently proposed changes to existing guidance and issued a new financial stability framework. The Council is seeking to reduce the time frame of the designation process from up to six years down to a more manageable period that still allows for adequate communication and discussion.

Central to the framework is an analysis to determine if a nonbank institution’s material financial distress or activities could pose a threat to US financial stability. To prevent the risk of financial disruption in the future, Secretary of the Treasury Janet Yellen emphasized the importance of the authority to issue emergency interventions.

The update to the framework and the efforts of the Treasury and financial regulators are designed to strengthen the US banking system. Yellen and the FSOC are confident that the proposed changes will provide investors and citizens with greater assurance that their financial affairs remain safe and secure.



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