In the wake of several large domestic systemically important banks (DSIBs) failing nine months ago, Consumer Financial Protection Bureau (CFPB) Director Rohit Chopra has underscored the importance of regulatory authorities to safeguard the public and stabilize the financial system. The failures, which caused significant stress in the financial ecosystem and required emergency actions from policymakers, have highlighted the critical role of regulation and oversight.
“One of the key lessons of the DSIB failures was that regulators had hamstrung themselves in the years prior and had not used legal authorities to protect the public as contemplated by federal law,” said Chopra. He added that the situation underscored how a small number of large players can create systemic chaos.
Chopra also stressed the growing importance of data in the financial system. As technology firms increasingly move into the financial sector, leveraging their network effects to develop payment networks, cloud infrastructure, and artificial intelligence applications, Chopra emphasized the need to not only identify these risks but also take action to mitigate them.
He welcomed the Financial Stability Oversight Council’s (FSOC) decision this year to restore authority under Title I of the Dodd-Frank Act. This allows for the implementation of stronger financial stability safeguards for financial players operating outside the traditional banking system. However, Chopra noted the lack of firms presently designated for heightened scrutiny and called for credible implementation of the authority.
The FSOC also holds two important authorities under Title VIII of the Dodd-Frank Act, which could be used to bolster the resilience of financial market utilities and payment, clearing, and settlement activities. Chopra expressed satisfaction that the FSOC is actively evaluating the first-ever use of Title VIII authorities to address certain payment, clearing, and settlement activities.
Chopra lauded the publication of this year’s Financial Stability Oversight Council’s Annual Report, which provides a detailed overview of these risks and outlines plans for a greater focus on digital technologies in 2024. However, he stressed that the annual report is not an end in itself but a roadmap for regulatory agencies to use their individual and collective authorities to prevent future financial crises.
“The annual report sets us all on a path for actually using our legal authorities, rather than relegating them to dead letter law,” Chopra concluded. His remarks underscore the urgency for regulatory action to protect financial stability in an increasingly complex and digital financial landscape.
For the latest news on everything happening in Chester County and the surrounding area, be sure to follow MyChesCo on Google News and Microsoft Start.