Brits to U.S. Regulators: You're Not Strong Enough for a Crisis

(Bloomberg) -- The Financial Stability Oversight Council would probably not be able to stop another financial crisis because of its limited powers and narrow remit, a Bank of England study says.

The FSOC “has no macroprudential levers under its direct control, and not all its members have mandates to protect financial stability,” according to the study, which compared the powers of the U.S. body with the U.K.'s Financial Policy Committee. That could leave the American regulator vulnerable to political pressure and impede its ability to act.

The FSOC was formed after the 2008 financial crisis to monitor threats that could lead to another crash. Since the election of President Donald Trump, the body has looked for ways to cut back outdated and overlapping rules to reduce Wall Street's regulatory burden and compliance costs.

The authors said the range of powers granted to the FPC makes it “the most muscular macroprudential regulator in the world.” The committee has the authority to restrict lending, add capital buffers, vary risk weights for lenders, advise on stress tests and to demand additional powers as part of its remit. By contrast, the FSOC has few powers under its control.

That means “there is nothing the FSOC could do unilaterally to curtail a build-up of vulnerabilities in the financial system, or to address vulnerabilities associated with household indebtedness,” the study says.

The “Would Macroprudential Regulation Have Prevented the Last Crisis?” paper was written by the Bank of England's David Aikman, Jonathan Bridges and Caspar Siegert, and Anil Kashyap of the University of Chicago Booth School of Business.

To contact the reporter on this story: John Glover in London at johnglover@bloomberg.net

To contact the editors responsible for this story: Neil Callanan at ncallanan@bloomberg.net, Keith Campbell