HR-3682-119
Received in the Senate and Read twice and referred to the Committee on Banking, Housing, and Urban Affairs.
Sponsored by Bill Foster (D-IL)
What it does
This bill would amend the Dodd-Frank Act to require the Financial Stability Oversight Council (FSOC) to first consult with a nonbank financial company and its primary regulator, and determine that alternative actions are "impracticable or insufficient," before voting to designate that company for enhanced supervision by the Federal Reserve. Alternatives the Council must consider include applying heightened standards under existing authority or accepting a written remediation plan submitted by the company itself. The bill adds this requirement as a procedural prerequisite to any new nonbank designation vote.
Who benefits
Large nonbank financial companies (such as insurance firms, asset managers, hedge funds, and finance companies) that could otherwise be designated as systemically important and subjected to Federal Reserve oversight. Primary financial regulators of those companies (e.g., state insurance commissioners, the SEC) who would gain a formal consultation role. Companies that prefer to address systemic risk concerns through their own written plans rather than federal supervision. Shareholders and executives of nonbank firms who would face reduced compliance costs and regulatory burden if designation is avoided.
Who is hurt
Consumers and the broader financial system if the additional procedural hurdle delays or prevents designation of a genuinely systemically risky firm. Federal regulators and FSOC itself, which would lose some discretion to act quickly. Smaller banks and already-regulated financial institutions that operate under stricter oversight and may face competitive disadvantage relative to nonbank firms that avoid designation. Taxpayers who could bear costs in a future financial crisis if systemic risks go unaddressed.
Supporters argue
Supporters argue that FSOC's designation authority is an extraordinary power that should be used only as a last resort, and that requiring consideration of less burdensome alternatives first is a basic due process protection. They contend that the 2008 financial crisis showed the dangers of regulatory overreach as much as under-regulation, and that allowing companies to propose their own remediation plans encourages cooperative risk mitigation. They also point to FSOC's own 2019 guidance, which informally adopted a similar "activities-based" approach, suggesting this codifies a workable standard already in use.
Opponents argue
Opponents argue that adding a mandatory "alternatives first" procedural gate weakens FSOC's ability to respond swiftly to emerging systemic threats, potentially allowing dangerous risk concentrations to grow while the Council works through consultation requirements. They contend that the 2008 financial crisis was partly caused by large nonbank firms — including AIG and Lehman Brothers — operating outside robust federal oversight, and that this bill would make it harder to prevent a recurrence. They further argue that allowing companies to submit their own written plans creates a mechanism for delay and regulatory capture that could render the designation authority effectively toothless.
Constitutional context
The bill modifies a congressionally created administrative process under the Commerce Clause (Art. I, §8, cl. 3), which grants Congress broad authority to regulate financial markets. Post-Loper Bright v. Raimondo (2024), courts will independently review whether FSOC's interpretations of its statutory authority are correct, meaning the procedural constraints added here — and any agency attempts to work around them — would face heightened judicial scrutiny rather than deference.
Checks and balances
Congress gains authority by constraining FSOC's executive-branch discretion; FSOC retains the power to designate after exhausting alternatives, and courts retain independent review of whether the statutory prerequisites were properly followed under post-Loper Bright standards.
Historical precedent
The FSOC Improvement Act of 2015 passed the House with similar language requiring alternatives-first analysis before nonbank designation, but did not advance in the Senate; FSOC also adopted a voluntary version of this approach in its 2019 interpretive guidance.