Macroprudential Oversight: Principles for Evaluating Policies to Assess and Mitigate Risks to Financial System Stability
In response to the 2007-2009 financial crisis, Congress passed the 2010 Dodd-Frank Act, which provided for a broad range of financial regulatory reforms.
The act established the Financial Stability Oversight Council to help identify and respond to emerging threats to financial stability in the U.S.—in other words, to provide "macroprudential" oversight.
We created a framework for assessing the financial stability efforts of the Council and its member agencies. For instance, the framework emphasizes the need for early action to assess and mitigate the risks of events (such as a major bank failure or a pandemic) that could disrupt the economy.
What GAO Found
GAO is providing a framework for evaluating macroprudential policy—that is, activities designed to assess and mitigate risks to financial system stability. The framework presents six general components of macroprudential policy and 18 principles (see table), as well as related standards, for establishing the foundation of such policy and putting it into operation. Government actors—such as the Financial Stability Oversight Council (FSOC) and its member agencies—are responsible for meeting or contributing to framework principles as they relate to the actors' individual areas of macroprudential responsibility or authority. GAO refers to government actors with collective macroprudential policy responsibilities as the macroprudential entity.
GAO Framework for Evaluating Macroprudential Policy
The macroprudential entity should:
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Source: GAO. | GAO 21 230SP
Why GAO Did This Study
The Dodd-Frank Wall Street Reform and Consumer Protection Act established FSOC to identify and respond to threats to financial stability in the United States. Other countries have created similar entities, and a growing body of research has developed around these macroprudential structures and approaches. This report presents a principles-based framework to serve as criteria for assessing the financial stability efforts of FSOC and its member agencies. It is intended as a resource for GAO and other auditors, FSOC and its member agencies, and Congress. It also may be useful to others, both domestically and internationally.
In developing this framework, GAO reviewed literature on macroprudential policy, prior GAO reports, relevant laws and regulations, and international risk-management guidelines. GAO also interviewed or held discussion groups with representatives of FSOC and its member agencies; international financial stability entities, supreme audit institutions, and international organizations; public interest and industry groups; former regulators and civil servants; and academic and regulatory experts.
For more information, contact Michael E. Clements at (202) 512-8678 or ClementsM@gao.gov.