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United States Government Accountability Office: 
GAO: 

Report to Congressional Requesters: 

September 2012: 

Financial Stability: 

New Council and Research Office Should Strengthen the Accountability 
and Transparency of Their Decisions: 

GAO-12-886: 

GAO Highlights: 

Highlights of GAO-12-886, a report to congressional requesters. 

Why GAO Did This Study: 

In 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act 
created FSOC to identify and address threats to the stability of the 
U.S. financial system and OFR to support FSOC and Congress by 
providing financial research and data. GAO was asked to examine (1) 
any challenges FSOC and OFR face in fulfilling their missions (2) FSOC 
and OFR’s efforts to establish management structures and mechanisms to 
carry out their missions, (3) FSOC and OFR’s activities for supporting 
collaboration among their members and external stakeholders, and (4) 
the processes FSOC used to issue rules and reports. 

GAO reviewed FSOC documents related to the annual reports, 
rulemakings, and committee procedures, as well as documents on OFR’s 
budget, staffing, and strategic planning. GAO also interviewed FSOC 
and OFR staff, FSOC member and member agency staff, and external 
stakeholders, including foreign officials, industry trade groups, and 
academics. 

What GAO Found: 

These new organizations-—the Financial Stability Oversight Council 
(FSOC) and Office of Financial Research (OFR)-—face challenges in 
achieving their missions. Key FSOC missions-—to identify risks and 
respond to emerging threats to financial stability—-are inherently 
challenging, in part, because risks to financial stability do not 
develop in precisely the same way in successive crises. Collaboration 
among FSOC members can also be challenging at times, as almost all of 
them represent independent agencies that retained existing 
authorities. OFR faces the challenge of trying to establish and build 
a world-class research organization while meeting shorter-term goals 
and responsibilities. 

FSOC’s and OFR’s management mechanisms to carry out their missions 
could be enhanced to provide greater accountability and transparency. 
FSOC and OFR have taken steps toward establishing such mechanisms. 
FSOC has established seven standing committees generally composed of 
staff of its members and member agencies to support the council in 
carrying out its business and provide information to the council for 
decision making and adopted a memorandum of understanding on 
information sharing to help govern its activities. FSOC and OFR have 
also issued annual reports on their activities and created web pages 
that provide some information to the public. However, certain 
mechanisms could be strengthened. For instance: 

* FSOC’s Systemic Risk Committee, which is responsible for identifying 
risks to financial stability, has procedures to facilitate analysis of 
risks raised by staff. However, without a more systematic approach and 
comprehensive information, FSOC member agencies, on their own, may not 
be well positioned to judge which potential threats will benefit from 
interagency discussions. GAO recommends that FSOC collect and share 
key financial risk indicators as part of a systematic approach to help 
identify potential threats to financial stability. 

* Public information on FSOC’s and OFR’s decision making and 
activities is limited, which makes assessing their progress in 
carrying out their missions difficult. GAO recommends that (1) FSOC 
keep detailed records of closed-door sessions and (2) both entities 
develop a communication strategy to improve communications with the 
public. 

* FSOC’s annual reports-—which serve as its key accountability 
documents-—do not consistently identify which entities should monitor 
or implement the identified recommendations or give time frames for 
specific actions. To hold FSOC accountable for its recommendations, 
GAO recommends that FSOC recommend a lead agency or agencies to 
monitor or implement each recommendation within specified time frames. 

* OFR issued a strategic framework in March 2012 as an important first 
step in adopting a strategic planning and performance management 
system. However, that document lacked some leading practices such as 
linking activities to strategic goals and performance measurement 
systems. GAO recommends that OFR further develop a strategic planning 
and performance management system that includes these elements and 
will allow it to be held accountable. 

Figure: FSOC Membership: 

[Refer to PDF for image: illustration] 

Chairperson of FSOC: 
Secretary the of Treasury. 

Voting members: 
Comptroller of the Currency; 
Chairperson, Federal Deposit Insurance Corporation; 
Director, Consumer Financial Protection Bureau; 
Director, Federal Housing Finance Agency; 
Chairman, Board of Governors of the Federal Reserve System; 
Independent Member with Insurance Expertise; 
Chairman, National Credit Union Administration Board; 
Chairperson, Commodity Futures Trading Commission; 
Chairman, Securities and Exchange Commission. 

Nonvoting members: 
Director, Federal Insurance Office; 
Director, Office of Financial Research; 
State Banking Supervisor; 
State Insurance Commissioner; 
State Securities Commissioner. 

Source: GAO analysis of Dodd-Frank Act. 

[End of figure] 

Although FSOC and OFR have taken steps to promote collaboration among 
FSOC members and external stakeholders, FSOC could further adopt key 
practices. FSOC member agency staff noted that agencies have leveraged 
their joint expertise and resources to produce FSOC’s mandated reports 
and rules. OFR has also taken steps to collaborate with external 
stakeholders by initiating a working paper series, moving to form an 
advisory committee, and coordinating U.S. efforts at the international 
level to help create a legal entity identifier for financial entities 
that could enable regulators to identify parties to financial 
transactions. However, FSOC could do more to promote collaboration. 
For instance, FSOC, and OFR are required to monitor risks to financial 
stability, but they have not yet clarified agency responsibilities for 
implementation—-creating the potential for regulatory gaps or 
duplication of effort. In addition, FSOC could take better advantage 
of statutory mechanisms to leverage external resources, including 
developing advisory committees. To improve collaboration and 
coordination among its member agencies and with external stakeholders, 
GAO recommends that FSOC (1) develop policies to clarify when formal 
collaboration or coordination should occur and FSOC’s role in such 
efforts, (2) more fully incorporate key practices for successful 
collaboration that GAO has previously identified, and (3) clarify 
roles and responsibilities for implementing requirements to monitor 
risks to the financial system. 

FSOC has issued rules that improve the transparency of its processes, 
and statutorily mandated reports but has not established processes to 
help ensure that these will have their intended results. While FSOC 
has issued rules on processes for designating nonbank financial 
entities for additional oversight and intends to review certain 
aspects of those rules, it has not developed plans for comprehensively 
evaluating whether designations are having their intended impact—
reducing threats to financial stability. The impact of the 
designations on the economy and the financial entities will depend, in 
part, on a number of rules being issued by independent FSOC member 
agencies that will be applied to those being designated. Without a 
comprehensive assessment of the impact of these rules that will 
require the cooperation of individual FSOC members, understanding 
whether the designations are having their intended impact will be 
difficult. GAO recommends that FSOC develop a comprehensive framework 
for assessing the impact of its designation decisions. In addition, 
FSOC has not developed a systematic forward-looking process for 
identifying potential emerging threats in its mandated annual 
reporting process. In particular, FSOC does not have processes for 
consistently identifying such threats, separating them from more 
current threats, or prioritizing them. Identifying a large number of 
threats—the 2011 report identified over 30—without prioritizing them 
makes focusing on those that are most important difficult for 
decisionmakers. The 2012 report also included many threats, and 
neither report separates current threats from those that are 
potentially emerging. To improve FSOC’s annual reporting on potential 
emerging threats, GAO recommends that FSOC develop more systematic 
approaches that are forward looking and help to prioritize the threats. 

What GAO Recommends: 

GAO makes 10 recommendations to strengthen the accountability and 
transparency of FSOC and OFR’s decisions and activities as well as to 
enhance collaboration among FSOC members and with external 
stakeholders. Treasury said, as Chairperson, that the council and OFR 
would consider the recommendations, but questioned the need for FSOC 
and OFR to clarify responsibilities for monitoring threats to 
financial stability and stated that OFR expects to share some risk 
indicators. However, stronger and more systematic actions are still 
needed in these areas. 

View [hyperlink, http://www.gao.gov/products/GAO-12-886]. For more 
information, contact A. Nicole Clowers at (202) 512-8678 or 
clowersa@gao.gov. 

[End of section] 

Contents: 

Letter: 

Background: 

FSOC and OFR Face Challenges Achieving Their Missions: 

FSOC's and OFR's Management Structures and Mechanisms Could Be 
Enhanced to Provide Greater Accountability and Transparency: 

FSOC and OFR Have Taken Steps to Collaborate but Could Enhance Their 
Efforts: 

FSOC Has Issued Rules and Reports but Processes May Not Ensure That 
Ongoing Activities Have the Intended Results: 

Conclusions: 

Recommendations for Executive Action: 

Agency Comments and Our Evaluation: 

Appendix I: Objectives, Scope, and Methodology: 

Appendix II: Standing Committees of the Financial Stability Oversight 
Council: 

Appendix III: Comments from the Department of the Treasury: 

Appendix IV: GAO Contact and Staff Acknowledgments: 

Tables: 

Table 1: FSOC Rules Issued between July 21, 2010 and July 20, 2012: 

Table 2: Reports Mandated by the Dodd-Frank Act and Issued by FSOC 
from July 21, 2010 to July 20, 2012: 

Figures: 

Figure 1: FSOC Membership: 

Figure 2: OFR Organizational Chart, as of July 2012: 

Figure 3: Selected Tools for Monitoring Risks to Financial Stability: 

Abbreviations: 

CFTC: Commodity Futures Trading Commission: 

CIGFO: Council of Inspectors General on Financial Oversight: 

Dodd-Frank Act: Dodd-Frank Wall Street Reform and Consumer Protection 
Act: 

EU: European Union: 

Executive Orders: Executive Orders 12866 and 13563: 

FACA: Federal Advisory Committee Act: 

FDIC: Federal Deposit Insurance Corporation: 

Federal Reserve: Board of Governors of the Federal Reserve System: 

FFIEC: Federal Financial Institutions Examination Council: 

FMU: financial market utility: 

FOIA: Freedom of Information Act: 

FSOC: Financial Stability Oversight Council: 

GPRA: Government Performance and Results Act of 1993, as amended: 

G20: Group of 20: 

MOU: memorandum of understanding: 

NPR: notice of proposed rulemaking: 

OCC: Office of the Comptroller of the Currency: 

OFR: Office of Financial Research: 

OIG: Treasury Office of the Inspector General: 

SEC: Securities and Exchange Commission: 

Treasury: Department of the Treasury: 

UK: United Kingdom: 

[End of section] 

United States Government Accountability Office: 
Washington, DC 20548: 

September 11, 2012: 

The Honorable Spencer Bachus: 
Chairman: 
Committee on Financial Services: 
House of Representatives: 

The Honorable Randy Neugebauer: 
Chairman: 
Subcommittee on Oversight and Investigations: 
Committee on Financial Services: 
House of Representatives: 

The 2007-2009 financial crisis focused attention on weaknesses in the
U.S. regulatory structure, including the lack of an agency or mechanism
responsible for monitoring and addressing risks across the financial
system and a shortage of timely information to facilitate that 
oversight. In response to the crisis, Congress passed the Dodd-Frank 
Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) in 
July 2010, which provided for a broad range of regulatory reforms. 
[Footnote 1] Among many other things, the act established the 
Financial Stability Oversight Council (FSOC) to monitor the stability 
of the U.S. financial system and take actions to mitigate risks that 
might destabilize the system.[Footnote 2] The Dodd-Frank Act also 
created the Office of Financial Research (OFR) to support FSOC and 
Congress by providing financial research and data.[Footnote 3] Congress
gave FSOC a number of significant authorities to help it execute its 
broad mission, including to designate nonbank financial companies for
heightened supervision by the Board of Governors of the Federal
Reserve System (Federal Reserve) and to require financial companies to
provide data to OFR. Congress set up some specific accountability
mechanisms for FSOC and OFR, such as requiring annual reports and 
testimonies. However, some members have emphasized that to hold
FSOC and OFR accountable, it needs to have a full understanding of the
operations and decision making processes of these entities to help
ensure that FSOC and OFR use their authorities as Congress intended. 

To help provide oversight of FSOC and OFR, the Dodd-Frank Act gave
GAO authority to audit these new entities, including their structures,
staffing, and decision making processes. Under this authority, you asked
us to examine the standing-up of these new entities. This report 
examines (1) any challenges FSOC and OFR face in fulfilling their 
missions; (2) FSOC’s and OFR’s efforts in establishing management 
structures and mechanisms to carry out their missions and attain their 
goals; (3) FSOC’s and OFR’s activities for supporting collaboration 
among members and external stakeholders, including international 
bodies and regulators; and (4) FSOC’s processes used to issue rules 
and reports. 

To identify and examine any challenges faced by FSOC and OFR, we
reviewed our prior reports on financial reform and the 2007-2009 
financial crisis and statements by government officials and academic 
experts. To assess their progress in establishing management 
structures and mechanisms, we reviewed documents and interviewed 
officials on FSOC’s and OFR’s missions, budgeting, staffing, data 
security, and planning. We assessed the reliability of OFR’s staffing 
data and determined that the data were sufficiently reliable for the 
purposes of this report. In addition, we reviewed literature on tools 
used or proposed by entities that write financial stability reports, 
and others, to identify potential threats to financial stability. We 
also coordinated with the inspectors general from the Department of 
the Treasury (Treasury) and the Council of Inspectors General on 
Financial Oversight (CIGFO) on their reviews of OFR and FSOC, 
respectively.[Footnote 4] 

To evaluate FSOC’s and OFR’s activities for collaboration among
members and external stakeholders, we analyzed FSOC policies,
procedures, and products to determine whether and how their practices 
compared with key elements of effective collaboration we have previously
identified.[Footnote 5] We also reviewed selected documents from 
international bodies for evidence of changes in their dealings with 
U.S. financial regulators since FSOC’s creation. To examine FSOC’s 
processes for issuing rules and reports, we identified products that 
had been issued as of July 20, 2012, and reviewed the processes used 
to develop them. We compared documentary and testimonial information 
from Treasury officials with rulemaking criteria established in our 
prior work and with standard economic practice. For all objectives, we 
interviewed FSOC and OFR staff and officials from FSOC’s member 
agencies. We also interviewed external stakeholders, including foreign 
officials, industry trade groups, and academics on various topics 
related to our objectives. For more information on our scope and 
methodology, see appendix I. 

We conducted this performance audit from November 2011 to September 
2012 in accordance with generally accepted government auditing 
standards. Those standards require that we plan and perform the audit 
to obtain sufficient, appropriate evidence to provide a reasonable 
basis for our findings and conclusions based on our audit objectives. 
We believe that the evidence obtained provides a reasonable basis for 
our findings and conclusions based on our audit objectives. 

Background: 

For some time, we have been reporting that the U.S. financial 
regulatory system has relied on a fragmented and complex arrangement 
of federal and state regulators to oversee its institutions.[Footnote 
6] This system--put into place over the last 150 years--has not kept 
pace with major developments in financial markets and products in 
recent decades. In particular, the current system was not designed to 
oversee today's large and interconnected financial institutions, whose 
activities pose new risks to the institutions themselves as well as to 
the broader financial system. This risk to the broader financial 
system, called systemic risk, refers to the possibility that a single 
event could broadly affect the entire financial system, causing 
widespread losses rather than just losses at one or a few 
institutions. Given these observations and concerns, we offered a 
framework for crafting and evaluating regulatory reform proposals that 
would have the characteristics that should be reflected in any new 
regulatory system.[Footnote 7] For example, we said that a regulatory 
system should minimize regulatory burden and promote accountability. 
We also designated reforming the financial regulatory system as a high-
risk area in 2009.[Footnote 8] 

FSOC's three primary purposes under the Dodd-Frank Act are to: 

1. identify risks to the financial stability of the United States that 
could arise from the material financial distress or failure, or 
ongoing activities, of large, interconnected bank holding companies 
and nonbank financial companies, as well as risks that could arise 
outside the financial services marketplace; 

2. promote market discipline by eliminating expectations on the part 
of shareholders, creditors, and counterparties of these large 
companies that the U.S. government will shield them from losses in the 
event of failure; and: 

3. respond to emerging threats to the stability of the U.S. financial 
system. 

To achieve these purposes, the Dodd-Frank Act gave FSOC a number of 
important authorities that allow it to: 

* collect information across the financial system so that regulators 
will be better prepared to address emerging threats; 

* designate for supervision by the Federal Reserve those nonbank 
financial companies that pose risks to the financial system as defined 
by the act; 

* designate as systemically important certain financial market 
utilities (FMU) and payment, clearing, or settlement activities, 
requiring them to meet prescribed risk management standards, and 
subjecting them to enhanced regulatory oversight;[Footnote 9] 

* recommend stricter standards for the large, interconnected bank 
holding companies and nonbank financial companies designated for 
enhanced supervision; 

* vote on determination by the Federal Reserve that action should be 
taken to break up institutions that pose a "grave threat" to U.S. 
financial stability; and: 

* facilitate information sharing and coordination among the member 
agencies to eliminate gaps in the regulatory structure.[Footnote 10] 

FSOC is chaired by the Secretary of the Treasury. As the chairperson 
of FSOC, the Secretary has certain powers and responsibilities related 
to FSOC's meetings, rulemakings, recommendations, and reports and 
testimony to Congress. The Secretary, in consultation with the other 
FSOC members, is also responsible for regular consultation with the 
financial regulatory entities and other appropriate organizations of 
foreign governments or international organizations. As shown in figure 
1, the Dodd-Frank Act provides that FSOC consists of 10 voting members 
and 5 nonvoting members. The 10 voting members provide a federal 
regulatory perspective and an independent insurance expert's view. The 
5 nonvoting members offer different insights as state-level 
representatives from bank, securities, and insurance regulators or as 
the directors of some new offices within Treasury--OFR and the Federal 
Insurance Office--that were established by the Dodd-Frank Act. The 
Dodd-Frank Act requires that the council meet at least once a quarter. 

Figure 1: FSOC Membership: 

[Refer to PDF for image: illustration] 

Chairperson of FSOC: 
Secretary the of Treasury. 

Voting members: 
Comptroller of the Currency; 
Chairperson, Federal Deposit Insurance Corporation; 
Director, Consumer Financial Protection Bureau; 
Director, Federal Housing Finance Agency; 
Chairman, Board of Governors of the Federal Reserve System; 
Independent Member with Insurance Expertise; 
Chairman, National Credit Union Administration Board; 
Chairperson, Commodity Futures Trading Commission; 
Chairman, Securities and Exchange Commission. 

Nonvoting members: 
Director, Federal Insurance Office; 
Director, Office of Financial Research; 
State Banking Supervisor; 
State Insurance Commissioner; 
State Securities Commissioner. 

Source: GAO analysis of Dodd-Frank Act. 

[End of figure] 

The Dodd-Frank Act established OFR to serve FSOC and its member 
agencies by improving the quality, transparency, and accessibility of 
financial data and information, conducting and sponsoring research 
related to financial stability, and promoting best practices in risk 
management. The act requires OFR to set up a data center and a 
research and analysis center to, among other things, 

* collect and provide data to FSOC and member agencies; 

* standardize the types and formats of data reported and collected; 

* perform applied and essential long-term research; 

* develop tools for risk measurement and monitoring; and: 

* make the results of its activities available to financial regulatory 
agencies. 

FSOC and OFR do not receive appropriated funds. During the 2-year 
period following the enactment of the Dodd-Frank Act, the Federal 
Reserve provided OFR funds to cover the expenses of the office. Moving 
forward, OFR will be funded through assessments levied on bank holding 
companies with total consolidated assets of $50 billion or more and 
nonbank financial companies designated by FSOC for supervision by the 
Federal Reserve.[Footnote 11] Until FSOC finalizes its designations 
for nonbank financial companies, assessments will be levied only 
against large bank holding companies. The collected assessments will 
be deposited into the Financial Research Fund, which was established 
within Treasury to fund the expenses of OFR. FSOC's expenses are 
considered expenses of OFR. The President's fiscal year 2013 budget 
included estimates of about $123 million for the Financial Research 
Fund for fiscal year 2012 and about $158 million for fiscal year 2013. 
Most of these funds are to support OFR, but the estimates include 
about $8 million for FSOC operations in fiscal year 2012 and nearly $9 
million in fiscal year 2013.[Footnote 12] Most of OFR's funding is 
budgeted for contractual services--including reimbursable support from 
Treasury and administrative services from the Office of the 
Comptroller of the Currency (OCC) and the Bureau of Public Debt--
employees and equipment.[Footnote 13] 

FSOC and OFR Face Challenges Achieving Their Missions: 

Key FSOC missions--to identify risks to U.S. financial stability and 
respond to emerging threats to stability--are inherently challenging. 
Risks to the stability of the U.S. financial system are difficult to 
identify because key indicators, such as market prices, often do not 
reflect these risks. Further, such threats do not develop in precisely 
the same way in successive crises, making them harder to identify. As 
FSOC's chairperson acknowledged in FSOC's 2011 Annual Report, the most 
significant threats to the stability of the financial system will 
often be the ones that are hardest to diagnose and preempt. Moreover, 
financial innovations that are not well understood further complicate 
the challenge. For example, prior to the 2007-2009 financial crisis, 
some experts viewed the risks associated with falling housing prices 
as a regional phenomenon. With the advent of mortgage-backed 
securities, these experts believed that the danger that falling house 
prices posed on the regional level had been mitigated, as they thought 
these securities had diversified and dispersed the risks. Although 
this dispersion of risk was expected to limit the impact of regional 
downturns, it helped to transmit the downturn in housing prices across 
the financial system and the nation. Experts have also noted that the 
task of effectively monitoring and mitigating systemic risk is both 
vast and procedurally complex. Additionally, actions to preemptively 
mitigate threats may appear unnecessary or too costly at the time they 
are proposed or taken. Although achieving FSOC's key missions is 
inherently challenging, failure to achieve them will continue to leave 
the financial system vulnerable to large or multiple shocks that could 
result in the large losses in asset values, higher unemployment, and 
slower economic growth associated with previous financial crises. 

Although the Dodd-Frank Act created FSOC to provide for a more 
comprehensive view of threats to U.S. financial stability, it left 
most of the fragmented and complex arrangement of independent Federal 
and State regulators that existed prior to the Dodd-Frank Act in place 
and generally preserved their statutory responsibilities. As a result, 
FSOC's effectiveness hinges to a large extent on collaboration among 
its many members, almost all of whom come from state and federal 
agencies with their own specific statutory missions. In testifying on 
the coordination of Dodd-Frank rulemakings assigned to specific FSOC 
members, before the U.S. House Financial Services Committee in October 
2011, the chairperson of FSOC recognized this challenge. He noted that 
the coordination challenge in the rulemaking process was hard because 
the Dodd-Frank Act left in place a financial system with a complicated 
set of independent agencies with overlapping jurisdictions and 
different responsibilities. However, the Chairperson also noted that 
certain agencies were working much more closely together than they did 
before the creation of FSOC. In our prior work, the federal financial 
regulators also emphasized the importance of maintaining their 
independence while serving as members of FSOC. For example, several 
FSOC member agencies noted in our prior work on Dodd-Frank rulemakings 
that any effort to coordinate rulemakings assigned to specific 
agencies through FSOC would need to be balanced against the statutory 
requirements of the independent agencies involved.[Footnote 14] In 
addition, the Chairperson has similarly noted that he does not have 
the authority to force agencies to coordinate, and neither he, nor 
FSOC as a whole, can force agencies to adopt compatible policies and 
procedures. FSOC members' staffs and staff at member agencies also 
noted that differences in policies and procedures are designed to 
address the differences in the entities they regulate. Regulators have 
also pointed to their differing statutory requirements to explain why 
they have differing views on policy issues. During the Basel II 
deliberations, for instance, U.S. bank regulators--the Federal Deposit 
Insurance Corporation (FDIC), Federal Reserve, and OCC--each had a 
different view of various aspects of those requirements.[Footnote 15] 
The regulators traced their differences back to their specific 
statutory responsibilities. Furthermore, although the United Kingdom 
(UK) and the European Union (EU) have established or are in the 
process of establishing councils to oversee systemic risk, in the UK 
and the EU the central bank has more members or more votes than other 
entities on these councils. In contrast, in the United States, the 
central bank--the Federal Reserve--has one member on FSOC and one vote 
among the 10 voting members. FSOC policy staff and staff at member 
agencies noted that the diverse perspectives of FSOC members enrich 
FSOC deliberations. 

OFR also faces the challenge of trying to build a world-class research 
organization from the ground up while meeting shorter term goals and 
responsibilities. Recognizing these difficulties, the Dodd-Frank Act 
required that OFR submit annual human resource planning reports to 
Congress that cover the new entity's plans for recruitment and 
retention, training and workforce development, and workforce 
flexibility. The September 2011 plan stated that a key feature of the 
recruitment message was to highlight OFR's ability to engage top 
academic and industry professionals through several unique 
opportunities. These included the ability to work in innovative 
research networks and with unique data sets, as well as the historic 
opportunity to be involved from the beginning in a new institution 
with broad, challenging goals. OFR recognizes the challenge of 
attracting and retaining highly trained staff, who often have other 
employment alternatives. When asked about challenges they face, OFR 
officials noted that one challenge to starting a research organization 
that is an unknown entity derives, in part, from some prospective 
employees wanting to see which other researchers are in place before 
agreeing to an employment offer. OFR officials told us that the 
organization is making steady progress toward reaching a point at 
which it will have an established core of staff and greater name 
recognition that will lessen this challenge. Those researchers who 
supported the creation of OFR have suggested that it will take many 
years for the new entity to provide the insights that will ultimately 
be expected of it. These researchers have also noted that the absence 
of a director for the organization has slowed this process. At the 
same time that OFR faces the long-term challenges of building a world-
class research organization, it also faces the challenge of balancing 
this longer-term goal with the need to meet shorter-term goals such as 
providing ongoing support to FSOC and standardizing the types and 
format of data collected and reported by the financial regulatory 
agencies.[Footnote 16] 

FSOC's and OFR's Management Structures and Mechanisms Could Be 
Enhanced to Provide Greater Accountability and Transparency: 

FSOC and OFR have taken steps toward meeting the challenges they face, 
including setting up their management structures, communicating their 
mission and goals, and hiring staff. However, both entities could 
enhance their accountability mechanisms and level of transparency. 
FSOC and OFR have also taken steps to build mechanisms to identify 
potential threats to financial stability, but additional actions would 
strengthen this key mission of both entities. Additionally, while FSOC 
and OFR have developed web pages on Treasury's website and taken other 
steps to provide information to the public, these efforts have 
limitations and do not always fully inform Congress or the public 
about their activities and progress. Without taking additional steps 
to improve accountability and transparency, FSOC and OFR are missing 
the opportunity to demonstrate their progress in carrying out their 
missions. 

FSOC and OFR Have Set Up Initial Structures and Hired Staff, but Some 
Key Leadership Positions Remain Vacant at OFR: 

As we have reported in the past, agencies can manage or mitigate many 
of the challenges of setting up new organizations by developing strong 
management structures and control mechanisms.[Footnote 17] The 
literature on control mechanisms and government performance suggests 
that certain mechanisms, such as setting out goals and linking 
staffing, activities, and budgets to them, are key even when new 
agencies are being formed.[Footnote 18] Such control mechanisms 
provide management, staff, stakeholders, and the public with a good 
understanding of the organization's mission and goals, the steps it 
intends to take to carry out those goals, and an ongoing level of 
accountability. Agencies also need to establish measures to gauge 
their performance so that they can change strategies that are 
deficient in a timely manner. Organizations must also maintain an 
appropriate level of transparency. Because certain agencies rely on 
confidential information, such as that obtained during regulatory 
supervision, an appropriate level of transparency recognizes the need 
to maintain confidentiality and information security. In addition, 
agencies must balance the need for transparency with the need for 
those involved in deliberations to be able to express their views. 

FSOC has begun setting up its management structures. It has 
established a dedicated policy office within Treasury's Office of 
Domestic Finance, led by a Deputy Assistant Secretary, which functions 
as the FSOC Secretariat. Among other duties, the policy office works 
with staff of other FSOC members to support FSOC in its day-to-day 
operations by helping to draft rules, studies, and reports and prepare 
and circulate relevant materials to agency members prior to council 
meetings. The office also serves as a mechanism to bring issues to the 
council quickly. As of June 2012, there were 25 staff members in the 
FSOC policy office. 

FSOC has established seven standing committees generally composed of 
staff of its members and member agencies to carry out the business of 
the council including developing the information the members need to 
make decisions effectively. The Deputies Committee, which meets every 
2 weeks and consists of senior officials designated by members, is 
responsible for coordinating and overseeing the work of the staff 
committees. The deputies may resolve issues that arise in the other 
committees and determine the information that needs to be passed on to 
the FSOC members for discussion. Some other committees include the 
Systemic Risk Committee that analyzes emerging threats to financial 
stability, designations committees that support FSOC in evaluating 
FMUs and nonbank financial companies for certain additional oversight, 
and the Data Committee that supports OFR's data collection 
efforts.[Footnote 19] FSOC policy staff stated that all members and 
member agencies were invited to have staff participate on any 
committee and, in some cases, FSOC members attend committee meetings 
as well. They also noted that ad hoc staff groups were formed 
periodically to work on issues that might not fit within the purview 
of a standing committee. For example, an ad hoc group helped draft 
FSOC's 2011 Annual Report, and an ongoing legal working group holds 
conference calls as needed to address legal issues. 

OFR has also taken steps to set up needed management structures. As 
shown in figure 2, OFR has developed an organizational structure that 
is built around a Data Center and Research and Analysis Center--the 
two programmatic units established by the Dodd-Frank Act. OFR has 
adopted certain hiring policies required under the Dodd-Frank Act, 
including special salary schedules that are higher than the General 
Schedule, and used Treasury's existing authority from the Office of 
Personnel Management for Schedule A excepted hiring.[Footnote 20] In 
testimony delivered to the House Financial Services Subcommittee on 
Oversight and Investigations, in April 2012, the Chief Operating 
Officer described plans to build up to a staffing level of from 275 to 
300 staff in the next 2 to 3 years. OFR officials noted that they had 
relied on a variety of tools to solicit applicants, including letters 
to academic institutions. OFR's recruitment message has highlighted 
the opportunity to work on unique data sets and the historic 
opportunity to build a new institution that would promote financial 
stability. As of August 15, 2012 OFR had 112 employees. About three-
quarters of these employees were direct hires (including 22 
reimbursable staff from other Treasury departments) with the other 
quarter a combination of external detailees and student interns. 
Although this level is below the target employment level in OFR's 
budget, it represents marked progress from the second quarter of 2011, 
when OFR had seven employees and relied mostly on nonpermanent staff. 

Figure 2: OFR Organizational Chart, as of July 2012: 

[Refer to PDF for image: Organizational Chart] 

Top level: 
Director (A nominee is awaiting full Senate confirmation): 
* Chief Operating Officer (position filled); 
* Chief Counsel[B] (position filled). 

Second level: 

Data Center: 
Deputy Director: 
* Chief Business Officer[A] (position vacant); 
* Chief Technology Officer (position filled). 

Research and Analysis Center: 
Deputy Director (position vacant): 
* Chief of Analytical Strategy (position filled). 

Source: GAO presentation of OFR information] 

[A] The Deputy Director of the Data Center is also serving as the 
Acting Chief Business Officer. 

[B] The Chief Counsel reports directly to Treasury's Office of General 
Counsel. 

[End of figure] 

As it is for any agency, having effective leadership is critical to 
hiring qualified staff and providing effective governance. OFR has 
filled five of its eight top leadership positions, but two of the most 
important positions are not permanently filled: the OFR director and 
the deputy director of the Research and Analysis Center. A former 
Treasury official with knowledge of the search process for the 
director position said that it was difficult to attract a qualified 
candidate to head the agency for a 6-year term. After 17 months, the 
President put forth a nominee to head OFR in December 2011 who had 
been serving as the Counselor to the Secretary since April 2011 and 
continues to serve in that position. As of July 2012, the nominee is 
awaiting full Senate confirmation.[Footnote 21] Since OFR has also not 
filled the deputy director position at the Research and Analysis 
Center, the Chief of Analytical Strategy has assumed responsibility 
for standing up the Research and Analysis Center, including overseeing 
the hiring process, determining data needs, and defining the center's 
objectives and strategy. In June, OFR filled the Data Center Deputy 
Director position by promoting the Chief Business Officer to this 
position. The new Data Center Deputy Director will continue to serve 
as the Acting Chief Business Officer until this position is filled. In 
addition to these vacancies, a number of lower-level management 
vacancies remain, including positions at the Research and Analysis 
Center. For example, none of the assistant director positions under 
the Deputy Director of Research and Analysis have been filled. In 
addition, two of five assistant director positions under the Chief 
Technology Officer are open. However, OFR is not actively looking to 
fill one of the assistant director positions until the office reaches 
a mature state and has the need for this additional position. 

FSOC and OFR Have Adopted Certain Policies but Could Strengthen 
Mechanisms to Fully Ensure Accountability and Transparency: 

FSOC has implemented policies such as bylaws, a transparency policy, 
and a consultation framework, and members have signed a memorandum of 
understanding (MOU) on sharing confidential information to govern FSOC 
activities and promote accountability and transparency. OFR has also 
adopted policies and procedures for its operations. 

* FSOC's bylaws describe the duties of the Chairperson, members of the 
council, and staff; provide the governance structure for council 
meetings; and describe some policies for confidentiality and access to 
information, among other things. The bylaws also allow the Chairperson 
to appoint, with council approval, an Executive Director and Legal 
Counsel and to delegate some responsibilities to the Executive 
Director. As of July 2012, no one had been appointed to these 
positions. Instead, Treasury staff perform duties associated with 
these positions, such as providing ethics information to FSOC members. 

* The transparency policy commits FSOC to holding at least two open 
meetings per year but also establishes reasons why other meetings 
might be closed. For example, meetings may be closed during 
discussions of supervisory or other market-sensitive information or if 
an open meeting would result in the disclosure of information 
contained in investigation, examination, operating, or condition 
reports; or would necessarily and significantly compromise the mission 
or purposes of FSOC if it were disclosed. The policy also states that 
FSOC will release minutes to the public after the meetings. 

* FSOC's framework for consultation applies to regulations or actions 
required by the Dodd-Frank Act that must be completed in consultation 
with FSOC. For example, under the act, the Securities and Exchange 
Commission (SEC) must consult with FSOC in determining what 
information is to be collected from certain investment advisers to 
private funds relating to the assessment of systemic risk. The 
framework provides a timeline for holding initial meetings, 
circulating and commenting on staff recommendations, and briefing key 
policy staff of interested FSOC members on those recommendations. 

* FSOC members also signed an MOU to help ensure confidentiality of 
nonpublic information. The MOU requires that FSOC members not share 
this information with anyone outside their member agencies or 
otherwise specified support staff. Treasury officials and FSOC staff 
said that the MOU is necessary because it enables council members to 
share nonpublic information within the council and provides assurance 
to covered staff that they will not incur penalties for sharing 
information consistent with the MOU's terms. They noted, for example, 
that sharing certain supervisory information without such an agreement 
could carry severe penalties. In June 2012, CIGFO released a report on 
FSOC's controls over nonpublic information.[Footnote 22] CIGFO found 
that to date FSOC had shared limited nonpublic information, but this 
situation will change as OFR builds its capacity. CIGFO also found 
differences in the way FSOC member agencies marked and handled 
nonpublic information and noted that not addressing these differences 
could pose risks to the senders and receivers of such information. The 
FSOC Data Committee has undertaken a project to address these issues. 

* OFR has adopted policies and procedures for its operations, 
including those for data security, human resources, budget execution, 
and procurement. Because data operations are an important feature of 
OFR's operations, OFR officials said that they had spent significant 
time on data security architecture, looking at issues of 
confidentiality, user access, and cyber threats such as hacking. OFR 
has adopted Treasury procedures for ensuring data security and is 
expanding its security controls as necessary for OFR-specific systems 
and data, as well as for information sharing across FSOC member 
agencies. To further ensure confidentiality, they have also adopted 
postemployment restrictions, as required by the Dodd-Frank Act, 
stating that OFR employees generally may not be employed by or provide 
advice or consulting services to financial companies for one year 
after if they have had access to certain confidential information. 

In addition, FSOC has some planning under way and OFR has taken some 
actions and planned others that are consistent with legal requirements 
or leading practices for new organizations relative to strategic 
planning and performance management. In our prior work, we have 
identified three key steps for successful results-oriented 
organizations--(1) defining clear missions and desired outcomes; (2) 
measuring performance to gauge progress; and (3) using performance as 
a basis for decision making.[Footnote 23] These practices are 
consistent with the Government Performance and Results Act of 1993, as 
amended (GPRA), which requires agencies to periodically produce 
strategic plans, annual performance plans, and performance updates. 
[Footnote 24] FSOC, which is subject to GPRA, is in the early planning 
stages of how to satisfy its requirements and may, given its 
relatively small monetary outlays, request an exemption from certain 
GPRA requirements from the Office of Management and Budget.[Footnote 
25] In the interim, Treasury's strategic plan for fiscal year 2012-
2015 describes FSOC and the Treasury Secretary's role as FSOC 
chairperson, but it does not include information on FSOC's goals or 
how it will measure FSOC's progress in achieving them. 

OFR, which is not independently subject to GPRA, also received limited 
discussion in Treasury's 2012-2015 strategic plan. Specifically, the 
plan notes only that Treasury's Office of Domestic Finance supports 
OFR and that OFR was created by the Dodd-Frank Act. Similar to other 
entities within the Treasury such as the Bureau of the Public Debt and 
the Internal Revenue Service, and consistent with leading practices 
for new organizations, OFR is undertaking an independent strategic 
planning and performance management effort. OFR issued a strategic 
framework in March 2012 to cover fiscal years 2012- 2014. In the 
strategic framework OFR lists five strategic goals, including 
supporting FSOC through the secure provision of high-quality financial 
data and by conducting the analyses needed to monitor threats to 
financial stability; developing and promoting data-related standards 
and best practices; and providing the public with key data and 
analyses while protecting sensitive information. The framework also 
highlights a number of objectives under those goals and lays out 
implementation priorities for the first year covered by the document, 
fiscal year 2012. The framework also notes the importance of 
transparency and that OFR is subject to oversight from the Treasury 
Office of the Inspector General (OIG) and GAO, which have both 
exercised that authority during OFR's first two years, and that the 
Dodd-Frank Act requires that the OFR Director testify before Congress 
annually on OFR's activities. However, OFR acknowledges within its 
framework document, that it does not yet have certain other key 
elements of performance management in place including linking 
programmatic, human resources, and budgetary decision making to its 
strategic goals and developing a performance measurement system. The 
framework identifies establishing these elements of a performance 
management system among its fiscal 2012 priorities. OFR officials told 
us that they have begun to link its budget and human resources to 
strategic goals and that the human resources plan to be submitted to 
Congress in September 2012 and the fiscal year 2014 budget submission 
to be issued in 2013 will reflect these linkages.[Footnote 26] They 
added that at the time they issued the framework, they were not in a 
position to include performance measures, as the agency was not 
sufficiently established. However, they plan to include performance 
measures in their fiscal year 2014 budget submission. In June 2012, 
the Treasury OIG issued a report on the progress OFR had made in 
developing an implementation plan that lays out how it will stand up 
all of its operations and also noted the need to develop performance 
measures.[Footnote 27] Without developing and publishing such 
performance measures, neither the agency nor the public can determine 
whether OFR's expenditures and activities are most effectively aimed 
at accomplishing its mission. 

In the absence of a strategic plan, FSOC's annual reports serve as a 
key accountability document. An FSOC policy official said that at this 
time he views FSOC's annual reports as its strategic planning 
document. FSOC staff noted that its annual reports provide Congress 
and the public with a report on FSOC's activities, its views on 
potential emerging threats to U.S. financial stability, and 
recommendations to enhance the integrity, efficiency, competitiveness, 
and stability of U.S. financial markets. They note further that the 
council's chairperson is required to testify annually before Congress 
on the report, which serves as an accountability mechanism. When 
discussing accountability, FSOC members have noted the importance of 
the statement contained in the front of the reports (and signed by 
each member) that FSOC is taking reasonable steps to ensure financial 
stability and mitigate systemic risk.[Footnote 28] FSOC members have 
also acknowledged the need to follow up on recommendations, and FSOC 
staff noted that recommendations will be monitored by FSOC as a whole. 
However, the annual reports do not effectively communicate how FSOC 
will be held accountable for the actions identified. For example, the 
annual reports list multiple recommendations that FSOC plans to 
monitor over time, but do not specify how they will conduct that 
monitoring. For example, who is going to monitor or implement the 
recommendations and the recommendations themselves is often vague or 
unclear, and no time frames are specified. More specifically, in the 
2011 Annual Report some recommendations identified relevant parties 
only as "market participants" or "regulators" but did not consistently 
identify the targets of the recommendation or designate parties 
responsible for monitoring or implementing them. Another 
recommendation only discusses Dodd-Frank Act reforms, while several 
others express support for certain aspects of international 
coordination on financial reforms. In the 2012 Annual Report, FSOC 
adds some specificity to these recommendations, such as recommending 
an expeditious implementation of the Dodd-Frank Act. In the 2012 
Annual Report, FSOC also more clearly identifies recommendations 
starting each one with "the council recommends," but it still does not 
consistently designate an FSOC member or members to monitor or 
implement the recommendations nor does it establish time frames for 
certain actions such as reporting to the council on the status of the 
recommendation. Treasury officials noted that the Dodd-Frank Act did 
not give the chairperson or council authority to require that 
independent regulators take action or impose time frames on them. 
However, they noted that some recommendations in the 2012 Annual 
Report were made to specific agencies and put greater stress on more 
immediate action than others. For example, the report emphasized the 
importance of a recommendation to SEC to take action to address money 
market fund risks by saying that wholesale short-term funding markets 
are a critical component of a well-functioning financial system, and 
FSOC continues to be focused on structural vulnerabilities in money 
market funds that could disrupt these markets. Enhancing FSOC's 
accountability could lead to more effective oversight and public 
confidence in financial institutions and markets. 

In addition, while FSOC releases minutes from its meetings, as 
required by its bylaws, it does not keep detailed records of 
deliberations or discussions that take place at these meetings or at 
the committee level. While no specific level of detail is required for 
FSOC minutes, the limited documentation of their discussions makes it 
difficult to assess FSOC's performance. Another deliberative body, the 
Federal Reserve's Federal Open Market Committee, keeps transcripts of 
its meetings and voluntarily releases these transcripts to the public 
after 5 years. Releasing the transcripts after a period of time should 
allow the members of the committee to talk freely and provides 
documentation that can be used to assess the entity's performance and 
monitor their decision making process. 

FSOC and OFR Have Taken Steps to Build Mechanisms to Identify 
Potential Threats to Financial Stability, but More Work Is Needed to 
Realize This Goal: 

FSOC has taken steps to meet its statutory responsibilities related to 
identifying risks and potential emerging threats to U.S. financial 
stability, but has not yet developed comprehensive and systematic 
mechanisms to realize these goals. These steps include setting up the 
Systemic Risk Committee that is responsible for systemic risk 
monitoring and plays a key role in reviewing sources of systemic risk. 
Potential threats to financial stability are also discussed at FSOC 
meetings; for example, FSOC officials noted that a teleconference was 
convened to discuss MF Global. The Systemic Risk Committee generally 
meets every 2 weeks and is co-chaired by the Commodity Futures and 
Trading Commission (CFTC), FDIC, the Federal Reserve, and SEC. The 
committee is operating under draft procedures in which member agency 
staff suggest risks or threats that, in their view, may benefit from 
interagency coordination.[Footnote 29] In December 2011, FSOC members' 
staff provided 40 suggestions, which FSOC policy staff grouped into 
categories for discussions at the committee's monthly meetings. 
According to FSOC policy staff, if there is agreement that an issue 
would warrant further examination, an agency is assigned to develop 
the issue, including identifying vulnerabilities in the financial 
system. When the committee determines the issue is sufficiently 
developed, it presents the issue to the Deputies Committee. Sending 
some issues to the Deputies Committee sooner than others does not 
imply that the committee attaches greater importance to the issue but 
only that enough analysis has been completed to allow it to move 
forward. According to the draft procedures, if issues are elevated 
beyond the Deputies Committee to FSOC members, agencies may respond 
with a variety of actions, including enhanced monitoring, additional 
analysis, the development of potential policy responses, or the 
implementation of a particular policy response.[Footnote 30] 

OFR participates in the Systemic Risk Committee and is building 
capacity to monitor the financial system for threats to financial 
stability. OFR has developed the Financial Stability Monitor, a 
collection of metrics and indicators related to financial stability 
that is to be continuously updated, according to OFR and Treasury 
officials. According to these officials, OFR began sharing the 
Financial Stability Monitor with the Systemic Risk Committee and FSOC 
member agency staff in February 2012. OFR is assessing options for 
analyzing risks to financial stability and produced a working paper in 
collaboration with outside researchers, published in January 2012, to 
survey existing approaches.[Footnote 31] In addition, OFR and FSOC 
sponsored a conference in December 2011 to discuss data and technology 
issues and analytical approaches for assessing threats to financial 
stability.[Footnote 32] 

Although they are building some mechanisms to identify risks to the 
U.S. financial system, FSOC and OFR have not yet developed and 
implemented systematic and comprehensive mechanisms for identifying 
and monitoring these risks. A systematic approach would incorporate 
both rigorous methods--such as quantitative indicators and models--to 
assess vulnerabilities of the financial sector, as well as qualitative 
inputs to account for any shortcomings of the quantitative models or 
gaps in available data. A comprehensive approach would better ensure 
that all relevant aspects of the financial system are considered and 
analyzed. The Systemic Risk Committee procedures may facilitate 
analysis of risks that could benefit from interagency discussions and 
responses, but these procedures may not help to identify new risks or 
threats that FSOC member agencies have not already identified on their 
own. Without a more systematic approach and comprehensive information, 
FSOC member agencies, on their own, may not be well positioned to 
judge which potential threats will benefit from interagency 
discussions. FSOC and OFR could improve their efforts to identify 
risks and threats by collecting and sharing a common set of financial 
indicators.[Footnote 33] Systematic collection, analysis, and sharing 
of financial indicators of key risk factors such as leverage, 
liquidity, concentrations, underwriting standards, collateral quality, 
and delinquencies should provide insight into vulnerabilities 
affecting particular types of financial intermediaries or reveal 
patterns occurring across the financial system. OFR, through a 
mechanism such as the Financial Stability Monitor, could play a role 
in collecting, analyzing, and reporting on these indicators. A senior 
OFR official told us that this was the ultimate intent of the 
Financial Stability Monitor. A sample of the Financial Stability 
Monitor that we reviewed included, among other topics, some indicators 
of leverage and liquidity that were based on data from the federal 
banking agencies and purchased databases. 

Many analytical tools have been developed by researchers or are in use 
by international bodies to assess the risk of a financial crisis or 
identify vulnerabilities in the financial system. Some of these tools-
-such as early warning models--can be useful to assess the overall 
level of risk in the financial system, while others, such as system- 
wide stress testing, could be helpful in identifying new 
vulnerabilities and interconnections (see figure 3). In general, these 
tools are methods of integrating large volumes of financial 
information to generate specific insights about financial stability. 
Experts we spoke with were generally supportive of developing and 
using such tools for monitoring risks to financial stability and also 
emphasized the importance of using multiple tools. These tools, which 
all have useful features as well as shortcomings, may complement each 
other, and exploring a variety of tools will provide insight into 
which ones will be the most effective. According to FSOC policy staff, 
FSOC has not formally considered whether to develop early warning 
models or conduct system-wide stress tests. OFR staff said they are 
evaluating a range of metrics and methods that had been proposed for 
measuring and analyzing financial markets and systems and are in the 
early stages of developing network maps and other tools to assess 
financial stability. OFR evaluated 11 measures against a series of 
crises over time and reported on some of these efforts in its 2012 
Annual Report.[Footnote 34] In addition, OFR has a statutory 
responsibility to report on stress testing, and OFR officials told us 
that they interpreted that responsibility as contributing to the 
development and evaluation of quantitative tools that are used in 
stress tests, improving the data used in stress tests, and helping to 
advance the state-of-the-art in stress test methodologies. As such, 
OFR's survey of systemic risk approaches described several stress 
testing models and the OFR Annual Report noted that methodologies will 
need to advance to expose vulnerabilities in the financial system as a 
whole. OFR would support FSOC in evaluating system-wide stress tests, 
according to OFR officials. 

Figure 4: Selected Tools for Monitoring Risks to Financial Stability: 

[Refer to PDF for image: table] 

Early warning models: 
Early warning models have been widely studied and their relative 
merits are well understood.[A] Researchers have found that these 
models would have provided useful signals of financial stress before 
the 2007-2009 financial crisis.[B] Early warning models typically 
combine a number of financial indicators and determine which 
combination would have best predicted previous financial crises. The 
optimal combination is then used to forecast the likelihood of future 
financial crises. Some models emphasize a small number of high-level 
financial indicators, such as the total supply of credit in the 
economy, bank capital and liquidity, and measures of asset prices. 
Other models integrate information from a larger number of financial 
indicators, including the money supply, exchange rates, and measures 
of the balance of international trade, as well as the supply of credit 
and asset prices. 

Financial stability mapping: 

Financial stability mapping is another technique for representing 
aspects of the degree of risk in the financial system. The goal of 
this approach is to provide a visual representation of risk that can 
more easily reveal patterns. Researchers at the European Central Bank 
(ECB) and International Monetary Fund (IMF) have developed financial 
stability mapping approaches.[C] The financial stability map developed 
by ECB researchers-—not yet in use by ECB—-is designed to monitor 
vulnerabilities by locating a country in the financial stability 
cycle: precrisis, crisis, postcrisis, or tranquil. The approach at 
IMF, known as the Global Financial Stability Map, has been in use 
since 2007. IMF's map is intended to provide a graphical 
representation of IMF's assessment of financial stability based on six 
factors: macroeconomic risks, emerging market risks, credit risks, 
market and liquidity risks, risk appetite (the willingness of 
investors to take on risk), and monetary and financial conditions. In 
assessments by the respective researchers, both IMF approach and the 
approach developed by ECB researchers provided some early warning 
indications of financial stress.  

System-wide stress testing: 

One approach that would take advantage of the varying supervisory 
responsibilities of FSOC member agencies is system-wide stress 
testing, or stress testing that is designed to evaluate the broader 
financial system and understand linkages between the different markets 
and institutions. Stress testing is a technique for assessing the 
resilience of financial institutions or systems to extreme events. In 
contrast to the Federal Reserve's stress testing of large bank holding 
companies, a system-wide approach would stress different types of 
financial intermediaries (e.g., banks, money market funds, and 
insurance companies) to understand not just how intermediaries would 
fare in stress scenarios, but also how their responses would affect 
other financial intermediaries. Linkages between types of financial 
intermediaries were found in retrospect to have been critically 
important during the 2007-2009 financial crisis, and several groups, 
including OFR, have emphasized the importance of assessing 
interconnections between institutions when performing stress tests.[D] 
Nevertheless, these groups have also acknowledged the analytical and 
practical challenges associated with analyzing linkages among 
financial institutions. Alternatively, "top down" or "macro" stress 
tests rely less on institution-specific information and more on 
estimated relationships between the financial system and the economy. 

Source: GAO analysis of academic literature; Art Explosion (images). 

[A] See, for example, Marco Lo Duca and Tuomas Peltonen, Macro-
Financial Vulnerabilities and Future Financial Stress: Assessing 
Systemic Risks and Predicting Systemic Events, ECB Working Paper 1311 
(Frankfurt, Germany: March 2011); E. Philip Davis and Dilruba Karim, 
"Could Early Warning Systems Have Helped to Predict the Sub-Prime 
Crisis?" National Institute Economic Review 206 (October 2008); 
International Monetary Fund, The IMF-FSB Early Warning Exercise: 
Design and Methodological Toolkit (Washington, D.C.: September 2010). 
See also Andrew K. Rose and Mark M. Spiegel, Cross-Country Causes and 
Consequences of the 2008 Crisis: Early Warning, NBER Working Paper 
1537 (Cambridge, Ma.: September 2009) for some concerns about early 
warning approaches. 

[B] See Ray Barrell, E. Philip Davis, Dilruba Karim, and Iana Liadze, 
"Bank Regulation, Property Prices and Early Warning Systems for 
Banking Crises in OECD Countries," Journal of Banking and Finance 34 
(2010); Claudio Borio and Mathias Drehmann, "Assessing the Risk of 
Banking Crises - Revisited," BIS Quarterly Review (March 2009). 

[C] See Peter Sarlin and Tuomas Peltonen, Mapping the State of 
Financial Stability, ECB Working Paper 1382 (Frankfurt: September 
2011); Peter Dattels and others, Can You Map Global Financial 
Stability?, IMF Working Paper WP/10/145 (Washington, D.C.: June 2010). 

[D] See Pew Financial Reform Project, Standards for Financial Stress 
Tests (Washington, D.C.: June 2011); Basel Committee on Banking 
Supervision, Principles for Sound Stress Testing Practices and 
Supervision (Basel, Switzerland: May 2009); Institute of International 
Finance, Macroprudential Oversight: An Industry Perspective 
(Washington, D.C.: July 2011. The Bank of England also recently 
completed work on a model featuring interconnections in the banking 
industry to examine the potential impact of various stress scenarios 
on the UK financial system. See David Aikman and others, Funding 
Liquidity Risk in a Quantitative Model of Systemic Stability, Bank of 
England Working Paper 372 (London: June 2009). 

[End of figure] 

Limited Public Information Hinders Understanding of FSOC's and OFR's 
Activities and Progress: 

Although FSOC and OFR have adopted communication methods to provide 
information to the public and Congress on their activities, some of 
their methods could be strengthened. For example, both entities have 
web pages on Treasury's website. FSOC's web pages include minutes of 
the council's meetings, annual reports, frequently-asked-questions, 
and information on FSOC rulemakings. OFR has also posted key documents 
on its web pages, including its annual report, strategic framework, 
and updates on recent developments, such as the status of the legal 
entity identifier.[Footnote 35] OFR's first annual report discusses 
its activities and agenda for the next year, and its approach to 
researching financial stability as well as current threats. The annual 
report also covers other topics including data gaps in the areas of 
leverage, liquidity, and interconnectedness as well as the benefits of 
data standards. Treasury officials also provided us with examples of 
emails they have sent to congressional committees on key FSOC or OFR 
products or actions, such as the designation of nonbank financial 
companies, and described the wide range of correspondence they respond 
to on congressional inquiries involving both entities. 

FSOC releases the minutes of its meetings. However, the minutes 
describe general agenda items for the meetings and information on the 
presenters for each agenda item and lack additional detail even when 
the information being discussed is not likely to be market sensitive 
or limit the quality of deliberations. For example, the meeting 
minutes for October 11, 2011, show that several presentations were 
given during an executive session, including one on money market 
reform updates. The minutes provide the names of those who gave the 
money market presentation and note that updates were provided on 
actions taken since the last presentation on the topic. However, the 
minutes lack any content of the actual presentation or discussion. 
[Footnote 36] Specifically, the minutes say the following. 

"Money Market Fund Reform Update: 

"The Chairperson then turned to the agenda item regarding an update on 
money market fund reform and called on Robert Plaze, Associate 
Director, Division of Investment Management, SEC, Matthew Eichner, 
Associate Director, Division of Research and Statistics, Federal 
Reserve, Matthew Rutherford, Deputy Assistant Secretary for Federal 
Finance, Treasury, to make the presentation. The individuals listed 
above provided the presentation which included a review of the actions 
taken since the last presentation regarding money market fund reform 
to the Council, the reform options under consideration, and next steps. 

The members of the Council asked questions about the presentation." 

In addition, in our review of meeting minutes for meetings held from 
October 2010 through December 2011, we found that minutes from more 
recent meetings generally have less detail than those from earlier 
ones. As a result, the public receives little information about FSOC's 
activities and deliberations, which limits the public's understanding 
of its activities. More recently, however, FSOC provided additional 
transparency on a key decision--its 2012 Annual Report provides 
extensive information on the designation of FMUs as systemically 
important, including the names of the designated entities and a 
discussion of the reasons for their designation. 

FSOC policy officials acknowledged that the issue of transparency is 
challenging. They recognized the need for transparency but also noted 
that certain information is protected from disclosure under various 
statutes and cannot be released. FSOC staff also noted the need to 
balance the desire for transparency with the need to provide an 
environment that allows for open discussion and deliberation of issues 
and policy options. As we have previously reported, transparency is a 
key feature of accountability even when there is a need to safeguard 
certain sensitive information to protect the marketplace.[Footnote 37] 
In addition, the Freedom of Information Act (FOIA) recognizes that 
deliberative processes also need to be safeguarded so that decision 
makers can have meaningful discussions and certain information that 
FSOC considers, such as that collected by bank supervisors, is 
prohibited from public disclosure. However, similar bodies, such as 
the Federal Open Market Committee and the Interim Policy Committee in 
the UK--an entity that has a similar role to FSOC's--publishes minutes 
that provide greater detail. Although the Federal Open Market 
Committee makes certain announcements on the day it meets, after a 3-
week delay, it publishes its more detailed meeting minutes, which 
usually include a detailed discussion of developments in financial 
markets and the economy, committee member views, and an explanation of 
committee policy actions. In addition, as noted earlier in this 
report, 5 years after its meetings, the Federal Open Market Committee 
voluntarily releases transcriptions of those meetings. The minutes of 
the Interim Policy Committee in the UK provide information on what the 
committee discussed and an update on the health of the economy, 
including threats to financial stability. 

Additionally, neither FSOC nor OFR has taken full advantage of modern 
communication tools to communicate information about their activities 
or progress. While using a search engine, such as Google, identifies 
web pages for both entities on Treasury's website, the pages are not 
easy to locate from Treasury's homepage nor are the sites user 
friendly. For example, the FSOC and OFR web pages are in a section of 
Treasury's website called Initiatives and are further embedded under a 
section titled Wall Street Reform. While FSOC does post the dates and 
times of its meetings on its web page, this information is in a link 
at the bottom of the page rather than being prominently displayed. In 
addition, FSOC does not have an online service that regularly alerts 
interested parties to changes to its web pages or upcoming meetings. 
Further, one member of FSOC noted that FSOC relies on emails to 
members and staff rather than having a portal where members can access 
needed information more easily and securely. 

OFR's web pages have been evolving over time especially during July 
and August of 2012, but it could further improve its website. For 
example, we had noted in June 2012 that OFR did not consistently 
display agency testimonies in the same place; in August 2012, OFR 
rectified these omissions. Similarly, in March 2012, OFR told us that 
the Treasury daily blog provided information about OFR activities, but 
timely notices relevant to OFR have not regularly appeared there. For 
example, many of the recent developments related to global approval of 
the legal entity identifier, which OFR cites as a major endeavor, have 
not appeared in a timely manner. In July 2012, OFR added an online 
service to its own web pages to inform those who register that updates 
have been made to the site, but there was a delay in having the 
feature work consistently. However, OFR has not posted some 
information that would show the progress the agency is making in 
standing up its operations, such as its organization chart including 
the names of its top managers. In comparison, the Consumer Finance 
Protection Bureau, which was also created by the Dodd-Frank Act, has 
for some time had its own domain name, an easily identifiable website 
that includes an organization chart, and online services that provide 
regular updates to interested parties. 

Some industry representatives, academics, and former government 
officials have questioned the progress that the new entities have 
made. Some industry representatives with whom we spoke said that they 
did not believe that FSOC and OFR had met their expectations for 
streamlining regulatory requirements (e.g., responding to data 
requests), improving coordination on new regulations, or providing new 
information on systemic risks. Some members of FSOC and their staffs 
said that they learned a great deal from working on and reading the 
2011 Annual Report; however, some industry representatives with whom 
we spoke said that they did not find that report useful. Among other 
concerns, industry representatives told us that the report did not 
contain any new information on systemic risks or the status of Dodd-
Frank act reforms. In addition, a group of former government 
officials, academics, and industry representatives convened the 
Systemic Risk Council in June 2012 to address concerns that they said 
stemmed, in part, from the lack of progress made by the members of 
FSOC and OFR. They said that their concern increased each day that the 
implementation of systemic reform languished. The Systemic Risk 
Council also noted that it was essential for FSOC to provide clear and 
transparent explanations of regulatory reforms in a way that the 
general public could understand. Communicating more effectively with 
groups critical to their missions and the public could improve FSOC's 
and OFR's ability to effectively and efficiently achieve their 
missions. 

FSOC and OFR Have Taken Steps to Collaborate but Could Enhance Their 
Efforts: 

The Dodd-Frank Act recognizes the importance of collaboration and 
requires FSOC and OFR to collaborate on various activities. 
Effectively building mechanisms to identify risks and potential 
emerging threats to U.S. financial stability will also require FSOC 
and OFR to collaborate with a number of internal and external 
stakeholders. To date, FSOC and OFR have taken steps to promote 
collaboration; however, they could enhance collaboration by more fully 
incorporating some key elements of effective collaboration. Taking 
full advantage of opportunities to work with stakeholders could 
strengthen FSOC's and OFR's ability to carry out their missions. For 
example, in testifying about the need to coordinate agency 
rulemakings, FSOC's Chairperson noted the importance of coordinating 
both domestically and internationally to prevent risks from migrating 
to regulatory gaps--as they did before the 2007-2009 financial crisis--
and to reduce U.S. vulnerability to another financial crisis. In 
addition, effective collaboration could eliminate unnecessary 
duplication for both the industry and regulators. 

The Dodd-Frank Act Recognizes the Importance of Collaboration to 
FSOC's and OFR's Missions: 

Recognizing the importance of collaboration to FSOC's and OFR's 
missions, the Dodd-Frank Act assigns specific collaboration duties and 
responsibilities to these new entities. Title I of the act directs 
FSOC to facilitate information sharing and coordination among its 
member agencies and other federal and state agencies regarding 
domestic financial services policy development, rulemaking, 
examinations, reporting requirements, and enforcement actions. 
[Footnote 38] In addition, FSOC must consult with the primary 
financial regulatory agency, if any, before designating a nonbank 
financial company for supervision by the Federal Reserve. 

The Dodd-Frank Act also encourages collaboration between FSOC and 
external stakeholders, especially state regulators and international 
entities. For example, it permits FSOC to appoint technical and 
professional advisory committees which could include industry 
representatives and academics as well as state regulators that may be 
useful in carrying out the council's functions. The act eases the 
creation of committees by generally exempting them--and FSOC--from the 
Federal Advisory Committee Act (FACA), which requires agencies to 
adhere to a formalized process to ensure that committees are objective 
and accessible to the public.[Footnote 39] The act also directs the 
FSOC chairperson, in consultation with FSOC members, to regularly 
consult with financial regulatory entities and other appropriate 
organizations of foreign governments or international organizations on 
matters relating to systemic risk to the international financial 
system. Further, when designating foreign nonbank financial companies 
for supervision by the Federal Reserve, FSOC must consult with 
appropriate foreign regulatory authorities, to the extent appropriate. 

The Dodd-Frank Act also specifies a number of duties for OFR that 
require collaboration with FSOC members and others. In particular, OFR 
must collect data on behalf of FSOC, provide the data to FSOC and 
member agencies, and standardize data collection among the agencies. 
[Footnote 40] These activities require collaboration not only with 
FSOC member agencies but also with commercial data providers, publicly 
available data sources, and the financial industry. In addition, like 
FSOC, OFR can appoint technical and professional advisory committees 
to help leverage necessary resources, but these are not exempt from 
FACA. 

FSOC and OFR Have Taken Steps to Promote Collaboration: 

FSOC and OFR have taken steps to enhance collaboration among FSOC 
members and member agencies and with external stakeholders. Members' 
staffs stated that FSOC's organizational and committee structures help 
support collaboration both on a formal and informal basis. Through 
these committees, staff from member agencies said they have developed 
good working relationships with staff from other agencies. Prior to 
FSOC, two means of collaborating were the President's Working Group on 
Financial Markets and the Federal Financial Institutions Examination 
Council.[Footnote 41] Members' staffs noted that communication within 
FSOC had been broader and deeper than in either of those forums 
because staff from more agencies participate in FSOC at various 
levels. For example, staff said that various FSOC committees and 
working groups have allowed staff to develop contacts at other 
agencies with whom they can consult and share information on a variety 
of topics. In addition, staff said that through FSOC they had become 
acquainted with others having different expertise and have had the 
opportunity to share their views and experience with others. For 
example, the independent insurance member and his staff noted that 
they had used FSOC as a forum to provide information on insurance 
companies' use of money market funds, which may differ from the more 
common retail fund mechanisms. 

Through the committee structure, FSOC members' staffs also noted that 
agencies had leveraged their joint expertise and resources to carry 
out FSOC's statutory responsibilities, including rulemakings. For 
example, an ad hoc interagency lawyers group was formed shortly after 
the passage of the Dodd-Frank Act to provide regular input into the 
rulemaking process. The standing committees also provide input on 
rulemakings dealing with issues within their areas of expertise. In 
addition, throughout the rulemaking processes the Deputies Committee 
was briefed regularly, especially on issues that could not be resolved 
in other committees or working groups. The deputies kept their 
respective FSOC members informed throughout the rulemakings. 

We discussed with Treasury staff the FSOC chairperson's consultations 
with financial regulatory entities and other appropriate organizations 
of foreign governments or international organizations on matters 
relating to systemic risk to the international financial system. 
Treasury staff noted that the FSOC chairperson, who is also the 
Secretary of the Treasury, has regular contact with foreign officials 
and shares information from these interactions with other U.S. 
regulators at FSOC meetings. They said that they have monitored these 
activities and believe that FSOC is complying with the Dodd-Frank 
requirement. 

Further, OFR has taken some actions to collaborate by leveraging the 
expertise of external stakeholders and coordinating U.S. activities 
internationally. In particular, FSOC and OFR held a joint conference 
in December 2011 to discuss data and technology issues and analytical 
approaches for assessing threats to financial stability. The 
conference included attendees from the financial regulatory community, 
academia, public interest groups, and the financial services industry. 
OFR has also initiated a working paper series in which OFR researchers 
have collaborated with outside academics to catalog systemic risk 
monitoring systems and ways to improve risk management at financial 
institutions. In addition, OFR has invited experts on various aspects 
of financial stability to give seminars to OFR and FSOC policy staff. 
OFR has also announced plans to create the Financial Research Advisory 
Committee to solicit advice, recommendations, analysis, and 
information from academics, researchers, industry leaders, government 
officials, and experts in the fields of data and technology. 
Applications were due in April 2012, and in August 2012 OFR officials 
said that the list of applicants was in the final stage of review. OFR 
officials also noted that they play a key role on FSOC's Data 
Committee, which supports coordination of and consultation on issues 
related to FSOC data collection and sharing. 

In addition, OFR is working to standardize data reporting systems 
among FSOC member agencies. OFR officials noted that the agency had 
begun a three-stage process to assemble an inventory of data collected 
by FSOC member agencies as a first step toward standardizing data, 
reducing duplication, and eventually lowering costs for industry and 
regulators. The three stages examine data (1) purchased by the 
agencies, (2) collected through regulatory activities, and (3) derived 
by the agencies from data they purchased or collected. An OFR official 
said that the first phase was complete but had taken longer than 
initially envisioned because of the complexities of the project 
including agencies' use of different terminology for the same 
databases. For instance, the official noted that it had been difficult 
to create an effective survey instrument to capture the data purchased 
by the agencies, because the survey instrument had to capture the 
different terminology used by the various agencies. OFR officials said 
that they expected the process to allow them to determine when 
multiple agencies used the same data, identify data gaps more 
effectively, and seek potential savings in data acquisition. For 
example, they have been able to negotiate contracts that provide the 
small office of the independent insurance member of FSOC with access 
to expensive private databases. OFR officials said that OFR is also 
working with FSOC member agencies through FSOC's Data Committee to 
address differences in existing security classification systems and 
support efficient, secure data-sharing efforts given the statutory 
responsibilities agencies have to ensure the confidentiality of 
certain data. Many industry representatives with whom we spoke said 
that this project could help relieve regulatory burdens by 
standardizing data-reporting systems and reducing duplication, noting 
that currently multiple agencies ask for the same data but in 
different formats or at different times. 

Moreover, OFR has collaborated with industry, foreign government 
entities, and international bodies to create a legal entity 
identifier, which OFR describes as an emerging global standard that 
will enable regulators and companies around the world to quickly and 
accurately identify parties to financial transactions. Building on 
earlier industry and interagency efforts and on CFTC's and SEC's 
responses to mandates on data standards, OFR led U.S. government 
efforts to promote global adoption of the identifier. Within the 
expert group appointed by the Financial Stability Board to develop 
recommendations for the Group of 20 (G20) countries regarding the 
identifier, OFR led the U.S. consultative group, and OFR staffers have 
been leading singly or jointly the development of a governance 
framework and operating protocols.[Footnote 42] The Financial 
Stability Board endorsed the expert group's recommendations in May 
2012. In June 2012, the G20 endorsed the proposal, which includes a 
target for implementing a legal entity identifier system globally, 
with some allowance for variation across countries, by March 2013. OFR 
continues to serve as the vice-chair for the Americas on the group 
charged with implementing the identifier. 

FSOC Could Enhance Collaboration by Incorporating Key Practices: 

While the previous examples show the progress FSOC and OFR have made 
in terms of promoting collaboration, other examples suggest that 
additional actions are needed. In our prior work, we have identified 
practices that agencies can use to enhance and sustain their 
collaborative efforts. These include identifying and addressing needs 
by leveraging resources, agreeing on roles and responsibilities, and 
establishing mutually reinforcing or joint strategies.[Footnote 43] 
The examples below highlight areas in which FSOC's collaboration 
efforts could be enhanced by more fully reflecting these principles. 

Leveraging resources. FSOC has not taken advantage of opportunities to 
leverage resources through its authority to appoint technical and 
professional advisory committees. In addition to state regulators and 
council members, the Dodd-Frank Act specifies that such committees 
could include other persons. Such persons could be those from the 
industry and academics. Industry representatives have commented on the 
benefits of having industry input through such a committee, but, to 
date, FSOC has not established such committees. Moreover, the ability 
of FSOC members to leverage expertise varies. For example, while FSOC 
members from federal regulatory agencies are able to draw on staff 
from across their agencies, the independent insurance member and state 
representatives have limited support structures. The state 
representatives are limited by the number of support staff that have 
been allowed to sign required confidentiality agreements and this may 
limit these members' access to certain regulatory expertise. The 
representative of state insurance regulators noted that he must rely 
solely on his limited department staff and a small group of staff from 
the National Association of Insurance Commissioners that have been 
detailed to his department and have signed the confidentiality 
agreement to support his FSOC activities, including committee 
representation. In a letter to the FSOC Chairperson, the National 
Association of Insurance Commissioners and the State Insurance 
Representative that is a member of FSOC, stated that the State 
Insurance Representative had been prohibited from discussing or 
seeking guidance from other relevant state regulators even on a 
confidential basis. Subsequent to this letter, FSOC issued an 
"operational interpretation" of the MOU on the treatment of nonpublic 
information. This interpretation states in part that the MOU does not 
prevent an FSOC member from consulting or discussing with anyone FSOC 
proposals, rules or other matters provided that the member does not 
(1) disclose specified types of confidential information; (2) 
attribute nonpublic proposals, rules or other matters to FSOC or any 
of its members or (3) disclose their views on such matters. 

Similarly, the representative of the state banking regulators is 
supported by four staff from the Conference of State Bank Supervisors 
and the representative of the state securities regulators by two staff 
from the North American Securities Administrators Association. The 
state banking member's staff noted that Treasury had worked with the 
state members to secure their assistance, and that the State Banking 
Supervisor generally had adequate staff support. However, they did 
note that they think the process limited access to other state banking 
supervisors with specialized expertise. For example, they noted that 
they might want to consult with New York banking staff on 
international issues before FSOC, but confidentiality restrictions 
limit them to sharing information on FSOC matters only with the 
member, his state banking staff, and others who have signed a 
confidentiality agreement. In addition, the FSOC state insurance 
representative and his staff told us that because of the 
confidentiality restrictions, they had limited their discussions at 
International Association of Insurance Supervisors meetings, because 
they thought they could not speak to issues being discussed within 
FSOC. 

Agreeing on roles and responsibilities. As noted earlier, FSOC is 
tasked with monitoring the financial services marketplace to identify 
potential threats to U.S. financial stability, and OFR must develop 
and maintain metrics and reporting systems for risks to U.S. financial 
stability as well as monitor, investigate, and report on changes in 
system-wide risk levels. These responsibilities overlap somewhat, but 
this overlap is not unexpected given OFR's primary mission of 
supporting FSOC. FSOC and OFR staff cited their statutory 
responsibilities for monitoring risks to U.S. financial stability as 
the reason that both organizations are pursuing efforts in this arena. 
FSOC and OFR staff also noted that OFR participates on the Systemic 
Risk Committee, allowing for some coordination of efforts. The Dodd-
Frank Act defines certain responsibilities for FSOC and OFR, but, the 
lack of clear responsibility for implementation can lead to 
duplication, confusion, and gaps in their efforts. This risk is 
further compounded by the fact that many FSOC member agencies have 
risk analysis and data collection functions associated with their 
supervisory responsibilities. Some of these functions are explicitly 
focused on risks to financial stability, and some member agencies have 
created their own programs to examine these risks. For example, in 
2010 the Federal Reserve created an Office of Financial Stability 
Policy and Research to identify and analyze potential threats to 
financial stability. FDIC, SEC, and the Federal Housing Finance Agency 
have also created offices in recent years to monitor risks to 
financial stability originating in their regulated markets. To the 
extent that these programs provide unique information to FSOC, they 
will be contributing to the overall effort. However, if not properly 
coordinated, these separate efforts could be duplicative, resulting in 
wasted time and resources. 

Establishing reinforcing or joint strategies. To achieve a common 
outcome, collaborating agencies need to establish strategies that work 
in concert with those of their partners or that are joint in nature. 
Such strategies help in aligning activities, core processes, and 
resources to reach a common outcome. In this area, FSOC has taken 
actions to better coordinate members' rulemakings. In October 2010, it 
issued an integrated implementation road map for the Dodd-Frank Act 
that included a list of the rules regulators were required to 
promulgate, provided a time line for those rulemakings, and identified 
the agencies responsible for each rulemaking. FSOC has also developed 
a consultation framework for the agencies involved in rulemakings 
where consultation is required by the Dodd-Frank Act. The framework 
establishes time frames for coordinating three tasks: initial 
interagency meetings, circulation of term sheets for interagency 
comments, and circulation of proposed rules for interagency comments. 
In a November 2011 report, we noted that although FSOC's road map and 
consultation framework were a positive development in facilitating 
coordination, they had limited usefulness.[Footnote 44] For example, 
the consultation framework does not provide, nor according to FSOC 
staff is it intended to provide, any specifics about staff 
responsibilities or processes to facilitate coordination. For example, 
it does not mention the extent to which interagency coordination is 
required or what happens when rulemakings conflict with or duplicate 
each other. As a result, we recommended that FSOC work with the 
federal financial regulatory agencies to establish formal coordination 
policies that would clarify issues such as the timing of coordination, 
the process for soliciting and addressing comments, and FSOC's role in 
facilitating coordination.[Footnote 45] To date, FSOC has not 
implemented this recommendation. Industry representatives with whom we 
spoke also questioned why FSOC could not play a greater role in 
coordinating member agencies' rulemaking efforts. As an example of how 
coordination could be improved, representatives noted that FSOC's rule 
and interpretive guidance on designating nonbank financial companies 
for Federal Reserve supervision was finalized before the Federal 
Reserve had issued a rule laying out the requirements for determining 
whether a company would fall within the statutory definition of a 
financial company.[Footnote 46] FSOC and Federal Reserve staff said 
that after the timetable was set for the FSOC rule, the Federal 
Reserve decided that it needed to clarify some issues with its 
rulemaking, creating the anomaly of having a process for designating 
financial companies before the requirements for meeting the definition 
of a financial company had been adequately identified. The Secretary 
of the Treasury, FSOC's Chairperson has noted in testimony before the 
Congress that he does not have the power to force FSOC members to 
collaborate on rulemakings. 

FSOC Has Issued Rules and Reports but Processes May Not Ensure That 
Ongoing Activities Have the Intended Results: 

The Dodd-Frank Act requires FSOC to consult on a number of regulatory 
agency rulemakings, but it gave FSOC a few responsibilities that have 
led it to issue its own rules. These responsibilities include the 
authority to designate FMUs as systemically important and nonbank 
financial companies for supervision by the Federal Reserve under its 
enhanced prudential standards and to reevaluate the latter 
designations annually. While individual designations are not made by 
rule, in an effort to be more transparent, FSOC has issued rulemakings 
explaining the processes and criteria it will follow in making the 
individual designations. However, FSOC is not required to and has not 
developed a separate process to assess the overall impact of these 
designations including whether they are having the intended result of 
improving U.S. financial stability. The Dodd-Frank Act also mandated 
that FSOC issue a number of reports during its first two years, and 
FSOC has issued these by the mandated due dates. Most of these were 
one-time reports; however, FSOC is also mandated to report annually on 
a number of items, including potential emerging threats to financial 
stability. Both the 2011 and 2012 Annual Reports identify a number of 
threats, but they do not use a systematic forward-looking process for 
doing so. As a result, the reports may not be providing the public and 
Congress with the best information for guiding their decisions 
relative to these threats. 

FSOC Has Issued Rules on Processes for Designating Certain Financial 
Entities for Additional Supervision and the Freedom of Information Act: 

The Dodd-Frank Act provided FSOC with the authority to designate FMUs 
as systemically important. FMUs are to be considered systemically 
important if FSOC determines that the failure of an FMU or a 
disruption in its functioning could threaten U.S. financial stability. 
Similarly, the Dodd-Frank Act provided FSOC with the authority to 
designate nonbank financial companies for supervision by the Federal 
Reserve under its enhanced prudential standards.[Footnote 47] The act 
stipulates that FSOC may designate these companies for Federal Reserve 
supervision if material financial distress at that company, or the 
nature, scope, size, scale, concentration, interconnectedness, or mix 
of the activities of the company, could pose a threat to U.S. 
financial stability. The Federal Reserve has not issued final rules on 
its enhanced prudential standards, but other final rules that will 
apply to designated nonbank financial companies have been issued. 
These rules include a rule on resolution plans or "living wills," 
jointly issued by the Federal Reserve and FDIC that will require 
designated nonbank financial companies to prepare resolution plans and 
a rule, issued by the Treasury, which establishes an assessment 
schedule for the Financial Research Fund--the fund that finances OFR 
and FSOC under the Dodd-Frank Act.[Footnote 48] 

FSOC issued final rules on the processes FSOC intends to use for 
designating FMUs as systemically important and nonbank financial 
companies for Federal Reserve supervision in July 2011 and April 2012, 
respectively. In accordance with the Dodd-Frank Act, both rules 
specify that two-thirds of FSOC's voting members, including the 
chairperson, must vote to designate FMUs and nonbank financial 
companies. Each rule, with any accompanying interpretive guidance, 
also outlines a multistage process that FSOC intends to follow in 
designating these entities, including a process for designated 
entities to request an FSOC hearing before the designation becomes 
final. In its 2012 Annual Report, FSOC reported that it had designated 
eight FMUs as systemically important. In contrast, FSOC has not yet 
designated any nonbank financial companies. 

In April 2012, FSOC also issued a rule implementing the Freedom of 
Information Act (FOIA).[Footnote 49] The Dodd-Frank Act states that 
FOIA, including its exceptions from disclosure, applies to any 
information submitted to FSOC or OFR under title 1 of the act. It 
further states that FSOC, OFR, and member agencies are to maintain the 
confidentiality of such information if that confidentiality is 
protected from public disclosure by federal or state law.[Footnote 50] 
While FOIA would apply with or without a rule, FSOC issued a rule 
setting out the procedures for requesting access to information 
contained in its records. 

FSOC Generally Followed Similar Processes for Rules That Required 
Limited Regulatory Analysis: 

According to Treasury officials and staff, FSOC's rulemaking authority 
is narrow compared to that of the member agencies. The Dodd-Frank Act 
requires that those agencies issue a large number of rules, while it 
assigns few authorities to FSOC that may lead to rulemakings. Although 
FSOC does not have extensive rulemaking authority or written policies 
and procedures, its rulemakings followed a general process. For each 
rule, FSOC published a notice of proposed rulemaking in the Federal 
Register before issuing a final rule and included a time period for 
public comments (see table 1). Treasury staff noted that FSOC was not 
required to issue the various rulemakings but went through this 
process to provide greater public transparency of its processes. 
According to FSOC and Treasury officials, officials and staff from 
Treasury's Office of General Counsel led the rule-drafting process, 
with officials and staff from Treasury's Office of Domestic Finance, 
including the FSOC policy staff, and members' staffs contributing 
significantly to the drafting of the designations rules. The processes 
relied on various groups and mechanisms to get feedback from officials 
and FSOC members' staffs including standing committees and ad hoc 
working groups. The Deputies Committee was briefed regularly 
throughout the process, especially on issues that could not be 
resolved in other committees or working groups. Deputies kept their 
respective FSOC members informed throughout the rulemakings, and the 
members received all of the rule-making notices and final rules at 
least 48 hours before they were to be voted on at FSOC meetings. FSOC 
members voted unanimously to issue all of the rule-making notices and 
final rules before they were published in the Federal Register. 

Table 1: FSOC Rules Issued between July 21, 2010 and July 20, 2012: 

Title: Authority to Designate Financial Market Utilities as 
Systemically Important: 

Title: Advance Notice of Proposed Rulemaking (NPR); 
Issuance date: December 21, 2010; 
Due date for comments: January 20, 2011; 
Number of comments: 12; 
Effective date: [Empty]. 

Title: NPR; 
Issuance date: March 28, 2011; 
Due date for comments: May 27, 2011; 
Number of comments: 15; 
Effective date: [Empty]. 

Title: Final Rule; 
Issuance date: July 27, 2011; 
Due date for comments: n/a; 
Number of comments: N/A; 
Effective date: August 26, 2011. 

Title: Authority to Require Supervision and Regulation of Certain 
Nonbank Financial Companies: 

Title: Advance NPR; 
Issuance date: October 6, 2010; 
Due date for comments: November 5, 2010; 
Number of comments: 50; 
Effective date: [Empty]. 

Title: NPR; 
Issuance date: January 26, 2011; 
Due date for comments: February 25, 2011; 
Number of comments: 35; 
Effective date: [Empty]. 

Title: Second NPR; 
Issuance date: October 18, 2011; 
Due date for comments: December 19, 2011; 
Number of comments: 41; 
Effective date: [Empty]. 

Title: Final rule; 
Issuance date: April 11, 2012; 
Due date for comments: n/a; 
Number of comments: N/A; 
Effective date: May 11, 2012. 

Title: Implementation of the Freedom of Information Act. 

Title: NPR; 
Issuance date: March 28, 2011; 
Due date for comments: May 27, 2011; 
Number of comments: 9; 
Effective date: [Empty]. 

Title: Final rule; 
Issuance date: April 11, 2012; 
Due date for comments: n/a; 
Number of comments: N/A; 
Effective date: May 11, 2012. 

Source: GAO summary of information from the Federal Register. 

Note: n/a stands for not applicable. 

[End of table] 

Although the process for the rulemakings followed a general pattern, 
the number of notices, the time between the initial notice and the 
final rule, and the number of comments varied considerably across 
rules. Generally, these differences reflected differences in 
priorities and the potential impact of each rule. For example, FSOC 
and some member agency officials attributed the longer lapse between 
receiving comments on the notice for implementing FOIA and issuing the 
final rule to the relatively low priority attached to completing this 
rule. Officials told us that the rule remained a relatively low 
priority because FSOC had not yet begun gathering information under 
the FMU and nonbank financial company designation rules. In contrast, 
the long gap between the receipt of comments on the first notice of 
proposed rulemaking for the nonbank financial company rule and the 
issuance of the final rule reflects the complexities of developing a 
rule that encompasses a broad range of industry segments and the 
potential impact on them. 

During the gap between the first and second notices of proposed 
rulemaking for designating nonbank financial companies, FSOC and OFR 
staff developed information to support a set of thresholds for 
determining which nonbank financial companies would pass from the 
first stage of the designation process to the second. The thresholds, 
which were included in the interpretive guidance that accompanies the 
second notice, use publicly available information so that the first 
stage would be transparent. Financial companies have to meet a size 
threshold of $50 billion in assets and one of five other thresholds, 
including measures of leverage and debt. The thresholds generally 
reflect staff calculations. Staff generally calculated thresholds by 
placing the threshold at an interval above the mean that considers the 
dispersion of the data from the mean. Staff also tested to see whether 
certain companies that experienced material distress during the 2007-
2009 financial crisis would have been captured by the threshold. The 
data used were generally either data on the 19 largest bank holding 
companies or nonbank financial companies in 2007 and 2008. 

FSOC is subject to laws and executive orders that require certain 
regulatory analyses as part of its rule-making processes. These 
include the Paperwork Reduction Act and the Regulatory Flexibility 
Act, as well as Executive Orders 12866 and 13563 (Executive Orders). 
Among other things, the Paperwork Reduction Act requires agencies to 
justify any collection of information from the public and to estimate 
the time and expense required to comply with the paperwork 
requirements in the rule. The Regulatory Flexibility Act requires 
federal agencies to assess the impact of their regulation on small 
entities and consider regulatory alternatives to lessen any regulatory 
burden. The Executive Orders require FSOC to assess the economic 
effects of economically significant rules, including the quantitative 
and qualitative benefits and costs of those regulations.[Footnote 51] 

However, FSOC was required to consider costs and benefits only as they 
relate to the Paperwork Reduction Act for the FMU and nonbank 
financial company rulemakings. As a result, these rules contain 
estimates of the time needed to comply with paperwork requirements. 
FSOC estimates the annual reporting burden for the FMU rule at 500 
hours and for the nonbank financial company rule at 1,000 hours. The 
FMU rule does not include an estimate of the cost of the projected 
hours; the cost for the hours imposed by the nonbank financial company 
rule is estimated at $450,000 a year. FSOC concluded that small 
entities were unlikely to be designated as posing a risk to U.S. 
financial stability, and thus an analysis of the rules designating FMU 
and nonbank financial companies' impact on small entities was not 
required. In addition, FSOC did not conduct a benefit-cost analysis 
for the rules designating FMUs or nonbank financial companies because 
the Office of Management and Budget determined that these rules were 
not economically significant. Treasury officials noted that the rule 
did not impose substantive requirements on specific entities, but only 
laid out the process by which they could become subject to other rules 
and regulations. In addition, FSOC member staff noted that costs and 
benefits of the designation were not among the factors that the Dodd-
Frank Act directs FSOC to consider when making a designation. 

FSOC Has Not Set up Processes to Assess Whether Designating FMUs and 
Nonbank Financial Companies Will Have the Intended Impact: 

Designating FMUs and nonbank financial companies was intended to 
address certain risks to financial stability posed by these entities. 
The designations, however, have the potential to confer certain 
benefits and costs on the wider economy and individual entities being 
designated. Examples of potential benefits and costs of subjecting 
FMUs and nonbank financial companies to heightened supervision include 
the following: 

Economy-wide benefits. The Dodd-Frank Act provides FSOC with the 
authority to designate nonbank financial companies because Congress 
believed that these companies could threaten U.S. financial stability. 
Subjecting companies to enhanced supervision may contribute to 
financial stability. 

Individual benefits. Some research has shown that certain large, 
interconnected financial institutions considered too big to fail may 
have higher credit rating agency ratings and lower borrowing costs 
than would otherwise be warranted. As a result, designated nonbank 
financial companies that are not already treated as too big to fail by 
rating agencies or markets could see their borrowing costs fall. 
[Footnote 52] 

Economy-wide costs. Industry representatives have noted that 
regulations such as minimum capital requirements that may be imposed 
on designated entities have the potential to reduce the availability 
of credit and slow economic growth. 

Individual costs. Some of those who commented on the nonbank financial 
company rule noted that being designated would impose a significant 
regulatory burden on the designated companies. Designated nonbank 
financial companies will be subject to supervision similar to that for 
large bank holding companies, required to prepare resolution plans, 
and assessed fees to fund the operation of OFR and FSOC. However, the 
impact of these Dodd-Frank Act provisions on designated nonbank 
financial companies will not be known until the rules are applied. 
Designated FMUs could also experience increased costs. 

The Dodd-Frank Act requires FSOC to rescind any designation if the 
institution no longer meets the FMU or nonbank financial company 
standards and specifically requires FSOC to reevaluate nonbank 
financial company designations at least annually. The final rule for 
designating certain nonbank financial companies for enhanced 
supervision says FSOC will notify a nonbank financial company prior to 
an annual reevaluation and provide the company up for review with an 
opportunity to submit written materials to contest the designation. 
However, the rule also notes that reevaluations will focus on material 
changes since a previous review rather than a full replication of the 
original designation process. In the interpretive guidance for the 
nonbank financial company designations, FSOC says that it also intends 
to review the appropriateness of both the stage one thresholds and the 
levels of the thresholds that are specified in dollars as needed, but 
at least every five years, and to adjust the thresholds and levels as 
it may deem advisable. However, FSOC has not set up processes to 
conduct a comprehensive assessment of the overall impact of 
designations. 

Doing a comprehensive analysis to assess whether designations are 
having their intended impact of providing greater financial stability 
and the extent of any other impacts will be challenging. Namely, 
establishing a baseline from which to evaluate the overall impact of 
various rules will likely be complex because the impact of being 
designated will depend on the application of a number of rules being 
written by multiple independent regulatory agencies and issued over a 
span of time. [Footnote 53] For example, rules the CFTC, Federal 
Reserve, and SEC are writing will help determine the impact of being 
designated a systemically important FMU. Similarly, the impact of 
being designated a nonbank financial company will be influenced by the 
rule the Federal Reserve is writing, to implement enhanced prudential 
standards; the Federal Reserve and FDIC rule on resolution planning; 
and Treasury's rule on assessments to fund FSOC and OFR. Moreover, not 
all of these agencies are required to conduct cost-benefit analyses 
that might be useful in establishing a baseline for ongoing 
evaluation. For example, neither the Federal Reserve nor FDIC are 
subject to the Executive Orders that require an economic analysis of 
the costs and benefits of certain rules. Furthermore, while some 
regulatory agencies may conduct periodic retrospective reviews of 
their rules, these reviews tend to focus only on the rules issued by 
their agency. 

FSOC is uniquely positioned to address this challenge. FSOC is 
responsible for designating FMUs and nonbank financial companies, and 
its member agencies are responsible for writing the rules that will 
impact these designated entities. Moreover, FSOC can rely on OFR for 
some data collection and analysis. However, FSOC members would need to 
collaborate on such an assessment, because FSOC policy and OFR staff, 
who are Treasury employees, may not have access to all of the needed 
information. In addition, collaboration is needed because, according 
to Treasury officials, it would be inappropriate for FSOC staff to 
review rules drafted by independent agencies unless those agencies 
agreed to participate in the comprehensive assessment. Without such an 
assessment, decision makers may not have the information they will 
need to determine whether designating new entities for enhanced 
supervision and other requirements and restrictions is addressing a 
perceived gap in the regulatory system and improving the stability of 
the financial system or whether policy changes should be considered. 

FSOC Has Issued Mandated Reports, but Does Not Have Sufficient 
Processes for Identifying or Prioritizing Emerging Threats: 

As table 2 shows, the Dodd-Frank Act mandated that FSOC issue a number 
of reports, including five one-time studies and ongoing annual 
reports.[Footnote 54] Although some of the timelines were short--two 
of the studies had to be issued in 6 months--and the subject matter 
difficult, FSOC met all of its mandated report timelines and generally 
strove to address the specific items in the mandate. For example, the 
mandated studies generally began with a discussion of the mandate 
itself and the extent to which the report could address certain 
questions. The 2011 Annual Report also generally addressed the 
subjects in the mandate, including identifying emerging threats to 
financial stability of the nation and recommendations to enhance the 
integrity, efficiency, competitiveness, and stability of U.S. 
financial markets; promote market discipline; and maintain investor 
confidence. 

Table 2: Reports Mandated by the Dodd-Frank Act and Issued by FSOC 
from July 21, 2010 to July 20, 2012: 

Studies: 

Report title: Study & Recommendations on Prohibitions on Proprietary 
Trading & Certain Relationships with Hedge Funds & Private Equity 
Funds; 
Issuance date: January 2011; 
Number of public comments: 8,000[A]; 
Number of recommendations: 10. 

Report title: Study & Recommendations Regarding Concentration Limits 
on Large Financial Companies; 
Issuance date: January 2011; 
Number of public comments: 6; 
Number of recommendations: 3. 

Report title: Report to the Congress on Secured Creditor Haircuts; 
Issuance date: July 2011; 
Number of public comments: n/a; 
Number of recommendations: 0. 

Report title: Report to the Congress on Prompt Corrective Action; 
Issuance date: December 2011; 
Number of public comments: n/a; 
Number of recommendations: 0. 

Report title: Report to Congress on Study of a Contingent Capital 
Requirement for Certain Nonbank Financial Companies and Bank Holding 
Companies; 
Issuance date: July 2012; 
Number of public comments: n/a; 
Number of recommendations: 1. 

Annual reports: 

Report title: FSOC 2011 Annual Report; 
Issuance date: July 2011; 
Number of public comments: n/a; 
Number of recommendations: 14. 

Report title: FSOC 2012 Annual Report; 
Issuance date: July 2012; 
Number of public comments: n/a; 
Number of recommendations: 29. 

Source: GAO summary of information from FSOC. 

Note: n/a stands for not applicable. 

[A] This number includes 6,550 similar letters that FSOC describes as 
essentially the same letter with different signatures. 

[End of table] 

The processes that FSOC used to issue all of the reports were 
generally similar to those used for rulemakings. Treasury officials 
led activities related to issuing the studies, except that the Federal 
Reserve staff led activities for and was the author of the study on 
concentration limits. For the annual reports, FSOC brought on 
detailees from Federal Reserve District Banks to lead the process. For 
all of the reports, the process relied on ad hoc working groups of 
member staff to provide input. FSOC also relied on the Deputies 
Committee to help manage the process and keep FSOC members informed of 
key decisions. The members voted unanimously to issue all of the 
reports. 

FSOC's annual reporting process is an ongoing responsibility which, in 
the absence of a strategic plan, functions as its major strategic 
planning document and method for communicating with Congress and the 
public, especially regarding potential emerging threats to U.S. 
financial stability. FSOC's early annual reports provide extensive 
information about the current economy and complex issues, such as high-
frequency trading and the MF Global bankruptcy. In addition, the 
reports provide extensive discussions of current known threats such as 
those associated with money market funds and the European sovereign-
debt crisis and makes some recommendations to address them. However, 
FSOC has not developed a structure that supports having a systematic 
or comprehensive process for identifying potential emerging threats. 
The process for identifying these threats is similar, in some ways, to 
that used by the Systemic Risk Committee. Members' staffs, including 
some members of the Systemic Risk Committee, identify specific threats 
for consideration. As a result, new threats that members or staff have 
not already identified may not be included. 

In addition, the lack of a systematic process for identifying 
potential emerging threats leads to potential inconsistencies in 
identifying such threats. For instance, certain potential threats 
related to U.S. debt, are not in the 2011 Annual Report. Instead this 
report has a conflicting message on the danger the U.S. debt poses to 
financial stability.[Footnote 55] The project leader of the 2011 
Annual Report said that the report did not include the U.S. debt as an 
emerging threat because of issues of balance and the inappropriateness 
of FSOC speculating on the credit risk associated with U.S. Treasury 
securities. However, the 2012 Annual Report identifies the U.S. debt 
as a potential threat, but does not explain what has changed since the 
2011 report.[Footnote 56] Similarly, the 2011 report includes several 
threats associated with possible unintended consequences of new 
regulations being written to implement the Dodd-Frank Act, but the 
2012 report does not include these threats. The 2012 report does 
include a framework for identifying potential emerging threats, but, 
this framework, which separates threats into shocks to the system and 
vulnerabilities in the system that would exacerbate shocks, is not 
equivalent to the kind of systematic analysis that would help 
determine both the likelihood of a threat and its likely severity. 
Without a systematic process that consistently identifies threats 
Congress and the public might believe that a threat has grown in 
importance or been addressed when that is not the case. 

Similarly, neither the 2011 or 2012 annual reports use a systematic 
forward-looking approach to identify potentially emerging threats. As 
a result, they comingle threats that emerged during the 2007-2009 
crisis, current threats, and potentially emerging threats. Although 
the 2012 report notes that structural vulnerabilities that contributed 
to the 2007-2009 financial crisis associated with mortgage-backed 
securities backed by subprime mortgage debt built up over an 8-year 
period, the report does not use a systematic mechanism for identifying 
similar kinds of asset build-ups or other market changes that might 
signal a potential emerging threat. Rather the report often identifies 
risks, such as those associated with the European sovereign-debt 
crisis or money market funds, which are ongoing or have previously 
been identified, although it acknowledges that these events may change 
in the future in ways that are not currently known. The 2012 report 
does include at least one area that could be considered potentially 
emerging--threats associated with having a low interest rate 
environment. Specifically it notes threats associated with market 
participants taking on more risk to increase their earnings but says 
it does not see evidence of this now. Threats that emerged during the 
crisis or those that are currently evident likely require different 
and perhaps more immediate responses than those that are potentially 
emerging. The comingling of well-known risks with risks that are 
developing, but less well-known, reduces the ability of policymakers 
and market participants to develop effective and timely responses for 
the latter. 

Further, the FSOC process for identifying threats limits its ability 
to explicitly prioritize the large number of threats identified. The 
2011 report includes over 30 threats without explicitly specifying 
which are most important. The 2012 report also includes a lengthy list 
of threats without explicit prioritization. In contrast, other 
entities, such as the International Monetary Fund and European Central 
Bank, issue reports that explicitly prioritize potentially significant 
threats. Treasury and FSOC officials and staff noted that FSOC's 
Annual Reports have a different purpose and implicitly prioritize the 
threats in the recommendations sections of the reports. For example, 
they noted that the recommendation for money market funds--a threat 
included in the potentially emerging section--notes that the 
vulnerabilities associated with money market funds are a particular 
focus of FSOC. They contrasted this recommendation with other 
recommendations, such as those related to the low interest rate 
environment that notes that regulators and industry should adopt 
certain practices to help monitor the situation. However, the lack of 
a systematic process that explicitly prioritizes potential emerging 
threats leaves policymakers without the information they need to focus 
on or allocate scarce resources to the most important threats. 

Conclusions: 

The 2007-2009 financial crisis highlighted how the nation's fragmented 
regulatory structure was not equipped to monitor and address risks 
across the financial system, nor did it have the needed information to 
facilitate that oversight. To address this weakness, Congress created 
FSOC and OFR to improve the U.S. government's ability to identify and 
respond to future threats to financial stability. This is a daunting 
task, and one that is made more challenging as FSOC and OFR must 
concurrently stand-up organizations and establish a sense of 
collective accountability among the independent regulators and other 
members. 

Successfully implementing their mandates will require FSOC members to 
actively work together and with external stakeholders. Appropriate 
accountability and transparency mechanisms also need to be established 
to determine whether FSOC and OFR are effective and to ensure that the 
public and Congress have sufficient information to hold the entities 
accountable for results. Over the last 2 years, FSOC and OFR have made 
progress on these fronts. Staff from FSOC member agencies told us that 
the level of collaboration and communication among the agencies has 
increased since the creation of FSOC and that such collaboration has 
resulted in more information sharing and diverse perspectives being 
considered. OFR has also made contributions to international efforts, 
such as coordinating U.S. input on the Legal Entity Identifier, to 
enhance governments' abilities to track financial activity. 

While FSOC and OFR have made some progress, continued efforts to 
improve the entities' accountability, transparency, and collaboration 
are needed. As we have seen, for example: 

* OFR issued a strategic framework in March 2012 that covered the 
period fiscal years 2012-2014. This represented an important step for 
the new agency in adopting leading practices in performance 
management. The framework identifies OFR's strategic goals, highlights 
a number of objectives under those goals, and lays out implementation 
priorities for the first year covered by the document. However, as OFR 
acknowledges, the framework does not include key elements of a 
performance management system, such as linking programmatic, human 
resources, and budgetary decision making to its strategic goals and 
developing performance measures. OFR expects to communicate progress 
on these key elements when it provides a new human resources plan to 
Congress in September 2012 and in its fiscal year 2014 budget 
submission. Moving forward, transforming its framework into a 
comprehensive strategic planning and performance management system can 
provide the agency with a long-term vision and allow others to hold it 
accountable which will be critical for OFR. 

* The critical role of monitoring threats to financial stability and 
responding to emerging threats also needs to be further developed. 
Potential threats to financial stability are discussed at FSOC 
meetings and FSOC has established a Systemic Risk Committee to 
facilitate coordination among members' staffs, including member 
agencies that often have their own groups devoted to risk analysis. In 
addition, OFR is evaluating a variety of potential tools for assessing 
financial stability and studying methods to improve stress tests. 
Collectively, these efforts remain incomplete. The approach of the 
Systemic Risk Committee can help FSOC analyze known risks but does not 
take full advantage of FSOC member agency resources to identify new 
threats to the financial system. Without more systematic and 
comprehensive mechanisms, including comprehensive sharing of key 
financial risk indicators, risks to financial stability may develop in 
the system without being recognized. 

* FSOC and OFR have attempted to be transparent with some of their 
decision making and activities. FSOC, for instance, posts the minutes 
from its meetings and other key documents on Treasury's website, and 
it provided insight into its designations processes through multiple 
rulemakings and comment periods as well as by providing additional 
information on the designation of FMUs in its 2012 Annual Report. OFR 
also posted some information on Treasury's website and provided 
information on a wide range of OFR activities and research in its 
first annual report issued in July 2012. As we found, however, both 
FSOC and OFR could be more transparent. For example, FSOC's minutes 
contain limited details about the council's discussion and the amount 
of detail included in the minutes has declined over time. While some 
information discussed must remain confidential given potential market 
sensitivities, legal restrictions on sharing certain information, and 
the need for members to deliberate, striving to be as transparent as 
possible given the potential impact of some of its decisions on 
institutions and markets is important for FSOC. FSOC's and OFR's 
limited transparency has caused some former government officials, 
industry representatives, and academics to question whether they are 
making progress. Continued efforts to increase transparency will allow 
the public and Congress to better understand FSOC's and OFR's decision 
making, activities, and progress. 

* FSOC and OFR have taken some steps to encourage collaboration, such 
as FSOC setting up standing committees composed of members' staffs and 
OFR beginning to establish a professional and technical advisory 
committee. However, more needs to be done to promote collaboration--
both among FSOC members and between FSOC and external stakeholders. 
For example, FSOC has not yet set up advisory committees, and OFR and 
FSOC have not yet clarified their responsibility for implementing 
statutory requirements for monitoring and reporting on threats to U.S. 
financial stability, including the responsibilities of member 
agencies. More fully incorporating the key practices for successful 
collaboration, including agreeing on roles and responsibilities and 
establishing reinforcing or joint strategies, could make FSOC's and 
OFR's existing collaboration efforts more effective. Effective 
collaboration could eliminate unnecessary duplication for both the 
industry and regulators. In addition, it could help to fill regulatory 
gaps so that risks would not migrate to unregulated markets or 
countries as they did prior to the 2007-2009 financial crisis. 

* One of FSOC's most significant actions, to date, has been finalizing 
its rules for designating FMUs and nonbank financial companies for 
additional oversight. The Congress intended that the enhanced 
supervision of those entities designated would lead to greater 
financial stability. In addition, the designations will likely have 
other important ramifications for the designated entities--which will 
become subject to a number of other rules and regulations--and 
potentially the nation's economy. While FSOC must periodically 
reevaluate the nonbank financial company designations and intends to 
review the thresholds for stage one of the nonbank financial company 
process at least every 5 years, it is not required to conduct a 
comprehensive assessment to determine whether the designations are 
having their intended impact of improved financial stability as well 
as other consequences. Establishing a baseline and developing a 
framework to comprehensively assess the impact of the designations 
will be difficult because of the number of independent regulators 
involved. But, without such an analysis, Congress, the affected 
institutions, the public, and FSOC cannot determine whether the 
designations and associated oversight is actually helping to improve 
financial stability. 

* While FSOC's annual reports identify a number of potential emerging 
threats to the nation's financial stability, they do not use a 
systematic forward-looking approach to identify such threats. Thus, 
some threats may not be identified consistently or at all. Threats 
such as those associated with the long term U.S. debt appear in FSOC's 
2012 Annual Report but had not appeared in FSOC's 2011 Annual Report 
and there was no explanation for the change. The reports are also not 
forward-looking in that many of the identified threats, such as those 
associated with money market funds or the European debt crisis, will 
not potentially emerge but rather emerged during the 2007-2009 
financial crisis or more recently. Finally, the reports do not 
explicitly prioritize the emerging threats relying instead on a 
careful reading of the recommendations to determine which are 
critical. In addition, these recommendations do not consistently 
identify which member agency or agencies are recommended for 
implementing or monitoring the council's recommendations. The lack of 
this information makes determining which well-recognized threats 
require immediate action, which potential emerging threats are most 
likely to have severe outcomes, and how best for decision makers to 
address the differing threats. Finally, it does not allow Congress to 
hold FSOC accountable for identifying potential emerging threats or 
implementing the recommendations. 

* Whether FSOC and OFR fundamentally change the way the federal 
government monitors threats to financial stability remains an open 
question. This is due, in part, to the newness of the entities, as 
both continue to develop needed management structures. But limits to 
FSOC's and OFR's transparency also contribute to questions about their 
effectiveness. Addressing the issues we have identified will help FSOC 
and OFR shed more light on their decision making and activities and 
allow Congress to hold them accountable for results. Moreover, 
addressing these issues can help FSOC and OFR to further promote 
collaboration among FSOC's members and with external stakeholders, 
which is critical to their ability to achieve their missions. If they 
do not succeed in achieving their missions the financial system will 
remain vulnerable to large or multiple shocks that could result in 
large losses in asset values, higher unemployment, and slower economic 
growth associated with previous financial crises. 

Recommendations for Executive Action: 

While FSOC and OFR have made progress in establishing their operations 
and approaches for monitoring threats to financial stability, 
developing accountability and transparency mechanisms, and enhancing 
collaboration among the financial regulatory agencies, these efforts 
could be strengthened. Therefore, we are recommending that the 
Secretary of the Treasury take 10 actions--some in his capacity as the 
Chairperson of FSOC, in consultation with FSOC members, and in his 
leadership role for OFR, which does not yet have a confirmed director. 

We recommend that FSOC and OFR clarify responsibility for implementing 
requirements to monitor threats to financial stability across FSOC and 
OFR, including FSOC members and member agencies, to better ensure that 
the monitoring and analysis of the financial system are comprehensive 
and not unnecessarily duplicative. 

As FSOC continues to develop approaches for monitoring threats to 
financial stability, we recommend that FSOC develop an approach that 
includes systematic sharing of key financial risk indicators across 
FSOC members and member agencies to assist in identifying potential 
threats for further monitoring or analysis. 

To improve the transparency of FSOC and OFR operations, we recommend 
that FSOC and OFR each develop a communication strategy to improve 
communications with the public. The strategy could include using 
technology more effectively to communicate, such as having fully 
developed websites, sending regular notices to interested parties, and 
developing methods to communicate with the public. 

To support the growth of OFR into a viable and sustainable entity, we 
recommend that OFR build on its strategic framework by further 
developing its strategic planning and performance management system so 
that it links its activities to its goals and uses publicly available 
performance measures to measure its progress. 

To strengthen accountability and collaboration in FSOC's decision 
making, we recommend that FSOC take the following six actions: 

* Keep detailed records (for example, detailed minutes or transcripts) 
of closed door sessions of principals meetings and to the extent 
possible make them publicly available after an amount of time has 
passed sufficient to avoid the release of market-sensitive information 
or information that would limit deliberations. 

* Establish formal collaboration and coordination policies that 
clarify issues such as when collaboration or coordination should occur 
and what role FSOC should play in facilitating that coordination. 

* More fully incorporate key practices for successful collaboration 
that we have previously identified. Internally, this could include 
working with agencies to rationalize schedules for rulemakings and 
conducting collaborative system-wide stress testing. Externally, this 
could include using professional and technical advisors including 
state regulators, industry experts, and academics. 

* Establish a collaborative and comprehensive framework for assessing 
the impact of its decisions for designating FMUs and nonbank financial 
companies on the wider economy and those entities. This framework 
should include assessing the effects of subjecting designated FMUs and 
nonbank financial companies to new regulatory standards, requirements, 
and restrictions; establishing a baseline from which to measure the 
effects; and documenting the approach. 

* Develop more systematic forward-looking approaches for reporting on 
potential emerging threats to financial stability in annual reports. 
Such an approach should provide methodological insight into why 
certain threats to financial stability are included or excluded over 
time, separate current or past threats from those that are potentially 
emerging, and prioritize the latter. 

* Make recommendations in the annual report more specific by 
identifying which FSOC member agency or agencies, as appropriate, are 
recommended to monitor or implement such actions within specified time 
frames. 

Agency Comments and Our Evaluation: 

We provided a draft of this report to the Secretary of the Treasury--
as the Chairperson of FSOC and in his leadership role for OFR--for 
review and comment. Treasury's Under Secretary for Domestic Finance, 
on behalf of the Chairperson of FSOC, provided written comments, which 
are reprinted in appendix III. Treasury also provided technical 
comments on the draft report, which we incorporated as appropriate. 
Treasury solicited views from staff of the FSOC members and member 
agencies on the draft report and reflected these views in the comments 
provided to us. 

In their written comments, Treasury emphasizes the progress that FSOC 
and OFR have made since their creation. For example, Treasury 
highlights FSOC's work in issuing a final rule and guidance relating 
to the designation of nonbank financial companies for enhanced 
supervision and designating eight systemically important FMUs that 
will be subject to enhanced risk management standards. Treasury also 
highlights OFR's progress in building its organization and analytical 
capabilities, including the launch of OFR's working paper and seminar 
series for research on financial stability and risk management. 
Treasury also outlines efforts FSOC and OFR have taken to promote 
transparency and accountability, including testifying before Congress, 
responding to requests for information from oversight bodies, 
conducting voluntary rulemakings, or making information available on 
websites. In addition, Treasury also emphasizes that the progress that 
each entity has made to date should be viewed with the understanding 
that both entities are relatively new. Nevertheless, Treasury 
recognizes that more work remains. In the report, we also describe 
FSOC's and OFR's efforts, to date, in fulfilling their statutory 
responsibilities and efforts to promote accountability and 
transparency. The report also notes that both entities were 
established in 2010. 

In its letter, Treasury states that officials will carefully consider 
the report's findings and recommendations. Treasury further notes that 
the Secretary, in his role as Chairperson, will share the 
recommendations with the Council for their review and consideration. 
Treasury also offers initial reactions to several of our 
recommendations. First, regarding our recommendation that FSOC and OFR 
should clarify their responsibilities for monitoring threats to 
financial stability, Treasury states that there is no existing 
confusion or overlap of responsibilities. Furthermore, Treasury states 
that both organizations are working together to pursue their distinct, 
but complementary, statutory missions, and cites OFR's efforts to 
develop the Financial Stability Monitor, a collection of indicators 
related to financial stability that Treasury expects will be shared 
with FSOC members. In the report, we point out that Congress gave both 
FSOC and OFR responsibilities for monitoring systemic risk--
responsibilities that both entities must fulfill. We also highlight 
that multiple FSOC members, such as the Federal Reserve, also have 
ongoing efforts to monitor threats to financial stability. The report 
does not suggest that any overlap between these efforts currently 
exist. Rather, the report recommends that these similar statutory 
responsibilities and ongoing efforts should be clarified and carefully 
coordinated. While Treasury notes that no confusion or overlap 
currently exists, our past work has shown that without clearly 
delineating and coordinating roles and responsibilities there can be 
duplication of efforts, confusion, and regulatory gaps. In addition, 
the report notes the importance of a systematic and comprehensive 
approach to identifying threats to financial stability. While OFR's 
Financial Stability Monitor could be a vehicle for sharing key 
financial risk indicators, it does not yet reflect a comprehensive 
interagency effort to collect and share indicators related to 
financial stability. 

Second, Treasury states that it expects FSOC will consider the effects 
on the financial system resulting from designation in its periodic 
assessments in response to our recommendation that FSOC develop a 
framework for assessing the impact of its decisions for designating 
FMUs and nonbank financial companies on the wider economy and those 
entities. The Dodd-Frank Act requires FSOC to periodically review the 
designation of nonbank financial companies, and FSOC intends to 
periodically review FMU designations. However, FSOC is not currently 
required to examine the potential economic impact of the designations. 
In our report, we detail the types of benefits and costs that 
individually designated firms, as well as the economy at large, may 
experience as a result of the designations. Given the potential 
magnitude of these benefits and costs of the designations, a 
comprehensive assessment of their impact is warranted. 

Third, Treasury agrees that OFR should implement a robust strategic 
planning and performance management system as the office grows. 
Treasury describes OFR's past and ongoing efforts on this front, 
highlighting, for example, OFR's March 2012 strategic framework. In 
the report, we note that the strategic framework was an important 
first step for OFR, and we also describe OFR's efforts to develop an 
independent strategic planning and performance system, including 
performance measures, and time lines for publicly releasing this 
information. We acknowledge OFR's efforts in continuing to develop the 
elements required for a strategic plan and performance management 
system and will review this information when it is publicly released. 

Finally, Treasury notes our recommendation regarding OFR's 
communications strategy is consistent with the office's ongoing 
efforts. The letter describes OFR's efforts to improve communication 
and notes that FSOC's website is being redesigned to improve usability 
and navigation. The report also recognizes OFR's recent efforts to 
improve their communication methods, such as the recent capability OFR 
added to its website enabling the public to sign up for email alerts 
on recent OFR activities. 

As agreed with your office, unless you publicly announce the contents 
of this report earlier, we plan no further distribution until 30 days 
from the report date. At that time, we will send copies of this report 
to interested congressional committees and members, the Secretary of 
the Treasury, and other members of FSOC. The report also is available 
at no charge on the GAO website at [hyperlink, http://www.gao.gov]. 

If you or your staffs have any questions about this report, please 
contact A. Nicole Clowers at (202) 512-8678 or clowersa@gao.gov. 
Contact points for our Offices of Congressional Relations and Public 
Affairs may be found on the last page of this report. GAO staff who 
made major contributions to this report are listed in appendix IV. 

Signed by: 

A. Nicole Clowers: 
Director: 
Financial Markets and Community Investment: 

[End of section] 

Appendix I: Objectives, Scope, and Methodology: 

The objectives of this report are to examine the Financial Stability 
Oversight Council's (FSOC) and Office of Financial Research's (OFR) 
(1) challenges in fulfilling their missions; (2) efforts in 
establishing management structures and mechanisms to carry out their 
missions and attain their goals; and (3) activities for supporting 
collaboration among members and external stakeholders, including 
international bodies and regulators; as well as (4) FSOC's processes 
used to issue rules and reports. 

To identify and examine any challenges faced by FSOC and OFR, we 
reviewed our prior reports on regulatory reform and the financial 
crisis. We also reviewed statements of government officials, members 
of Congress, and academic experts. In addition, we interviewed FSOC 
policy staff and support staff of FSOC members, including staff and 
officials at member regulatory agencies. At OFR, we interviewed senior 
officials and some staff members. 

To examine FSOC's and OFR's efforts in establishing management 
structures and mechanisms to carry out their missions, we reviewed the 
Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank 
Act), FSOC's bylaws and organizational structure (including its 
committee structure), and OFR's strategic framework. We reviewed 
minutes from FSOC's principals' meetings (i.e., the meetings with the 
designated FSOC members, many of whom are heads of regulatory 
agencies), and we reviewed the minutes from the Federal Reserve's 
Federal Open Markets Committee and the United Kingdom Interim Policy 
Committee meetings for comparison purposes. We also examined the 
entities' fiscal years 2012 and 2013 budget requests, budgetary and 
staffing data, and congressional testimonies. We assessed the 
reliability of OFR's staffing data by comparing the data provided with 
information contained in the President's budget for fiscal year 2013 
and FSOC testimony in April 2011. We also tested the data for 
consistency over time. We determined the data were sufficiently 
reliable for our purposes. To understand the steps OFR is taking to 
protect the sensitive data it collects, we interviewed OFR officials 
with knowledge of data security efforts, reviewed the OFR strategic 
framework, and reviewed Congressional testimony provided by OFR. In 
addition, we reviewed the Department of the Treasury Inspector General 
reports on the stand-up of OFR and the Consumer Financial Protection 
Bureau. We used criteria from Standards for Internal Control in the 
Federal Government, our past work on the stand-up of federal entities, 
such as the Millennium Challenge Corporation, and managing for results 
to evaluate FSOC and OFR management structures and mechanisms, 
including their need for strategic planning and performance measures. 
We reviewed selected academic literature on tools used or proposed to 
identify potential threats to financial stability by entities that 
write financial stability reports, including the European Central 
Bank, Bank of England, and International Monetary Fund, and others, 
including the Institute for International Finance and Pew Financial 
Reform Project. We also attended FSOC's and OFR's December 2011 
conference entitled Macroprudential Toolkit: Measurement and Analysis. 
We interviewed some FSOC members; officials from FSOC federal 
regulatory agencies whose heads are members of FSOC (member agencies); 
support staff of other FSOC members; FSOC, OFR, and other Treasury 
officials and staff; and academics who have published research related 
to systemic risk and worked on financial stability reports.[Footnote 
57] We also coordinated with the Treasury Office of Inspector General 
and the Council of Inspectors General on Financial Oversight regarding 
their ongoing audits of FSOC and OFR. 

To determine how FSOC and OFR support collaboration, we reviewed our 
criteria for effective collaboration and compared it to FSOC and OFR 
policies and practices. We analyzed the Dodd-Frank Act requirements 
for collaboration, FSOC's transparency policy, hearing procedures, 
Dodd-Frank Act integrated implementation roadmap, and memorandum of 
understanding on information sharing. We also reviewed FSOC's 
products, such as the 2011 Annual Report, and interviewed FSOC staff 
and officials from FSOC member agencies and some FSOC member support 
staff to determine how FSOC members collaborate, including how they 
participate in the drafting of the products. To determine how 
collaboration practices among and between domestic and international 
financial regulators have changed since the creation of FSOC, we 
reviewed FSOC, OFR, and some member agencies' congressional testimony 
and reports from international bodies, such as the Financial Stability 
Board. Finally, we interviewed representatives from industry trade 
groups, government officials in the United Kingdom, and experts from 
the European Union. We selected individuals from the United Kingdom 
and European Union because those entities have experience working with 
U.S. federal financial regulators and councils designed to enhance 
financial stability. 

To examine the process and procedures FSOC and OFR used in issuing 
products, we analyzed FSOC rules or reports issued before July 2012 
including FSOC's 2011 and 2012 Annual Reports. We analyzed the content 
of public comments on three proposed rules to examine how FSOC 
addressed them in the final rules. We also reviewed documentation on 
the process FSOC staff used to document and address comments from 
member agencies on the 2011 Annual Report. In addition, we examined 
the analyses and other materials provided to FSOC members prior to 
their meetings, including material to be presented at the meetings 
dating from October 2010 through December 2011 and selected documents 
thereafter through March 2012. We interviewed officials from FSOC 
member agencies, FSOC and OFR policy staff who had responsibility for 
contributing to the products within our scope, academics who have 
published research related to systemic risk, and industry or trade 
groups who submitted comments on a number of FSOC rules and reports. 
Finally, using testimonial and documentary evidence, we compared 
FSOC's rulemaking process, rules, and reports with key practices 
identified in our prior work on rulemaking and standard economic 
practice, where applicable.[Footnote 58] 

We conducted this performance audit from November 2011 to September 
2012 in accordance with generally accepted government auditing 
standards. Those standards require that we plan and perform the audit 
to obtain sufficient, appropriate evidence to provide a reasonable 
basis for our findings and conclusions based on our audit objectives. 
We believe that the evidence obtained provides a reasonable basis for 
our findings and conclusions based on our audit objectives. 

[End of section] 

Appendix II: Standing Committees of the Financial Stability Oversight 
Council: 

FSOC has established seven standing committees. The committees and 
brief descriptions are listed below. 

* Deputies Committee: Coordinates and oversees the work of the 
interagency staff committees. The members of the Deputies Committee 
are senior officials from each of the member agencies. Treasury chairs 
this committee. 

* Systemic Risk Committee: Includes senior staff and reports to the 
Deputies Committee. The committee is accountable for systemic risk 
monitoring and will play a role in prioritizing the review of sources 
of systemic risk and guiding the work of staff and the systemic risk 
subcommittees. Treasury chairs this committee. It has two 
subcommittees. 

- Institutions Subcommittee: Focuses on identifying and analyzing 
issues that affect financial institutions in the medium and longer 
term. It also attempts to identify structural issues within financial 
institutions that could threaten financial stability, such as trends 
in leverage or funding structure, new products, or exposures to 
particular risks. The Board of Governors of the Federal Reserve 
(Federal Reserve) and the Federal Deposit Insurance Corporation (FDIC) 
chair this subcommittee. 

- Markets Subcommittee: This subcommittee focuses on identifying and 
analyzing issues that affect financial markets in the medium and 
longer term, including structural issues within financial markets that 
could threaten financial stability, such as trends in volatility or 
liquidity, market structure, or asset valuations. The Commodity 
Futures Trading Commission (CFTC) and Securities and Exchange 
Commission (SEC) chair this committee. 

* Designation of Nonbank Financial Companies Committee: Supports FSOC 
in considering, making, and reviewing designations of nonbank 
financial companies to be supervised by the Federal Reserve. The 
Federal Reserve and FDIC chair this committee. 

* Designation of Financial Market Utilities Committee: Supports FSOC 
in considering, making, and reviewing designations of financial market 
utilities and payment, clearing, and settlement activities. The 
Federal Reserve, SEC, and CFTC chair this committee. 

* Heightened Prudential Standards Committee: Supports FSOC in making 
recommendations for heightened prudential standards with respect to 
designated nonbank financial companies and large, interconnected bank 
holding companies, and with respect to other financial activities and 
practices that could impact financial stability. This committee also 
supports FSOC's authorities for monitoring regulatory developments, 
facilitating information sharing, recommending supervisory priorities 
and principles, and identifying gaps in regulation that could pose 
risks. The Federal Reserve and the Office of the Comptroller of the 
Currency chair this committee. 

* Orderly Liquidation Committee: Supports any FSOC recommendations on 
resolution plan requirements, consideration of filed resolution plans, 
and consideration of FDIC and Federal Reserve proposed orders to 
require divestiture; and consults with FSOC on rulemakings to 
implement the Title II orderly liquidation authority. FDIC and 
Treasury chair this committee. 

* Data Committee: Supports FSOC coordination of, and consultation on, 
agency rulemakings on data collection, and seeks to minimize 
duplication of data gathering operations. The committee supports a 
coordinated approach to information sharing and provides direction to, 
and requests data from, the Office of Financial Research (OFR). 
Additionally, the committee works with OFR on data standardization 
efforts. Treasury chairs this committee. 

[End of section] 

Appendix III: Comments from the Department of the Treasury: 

Department of The Treasury: 
Under Secretary: 
Washington, DC: 

September 5, 2012: 

Ms. A. Nicole Clowers: 
Director, Financial Markets and Community Investment: 
Government Accountability Office: 
441 G St., NW: 
Washington, D.C. 20548: 

Dear Ms. Clowers: 

I am writing on behalf of Secretary Geithner, who serves as the 
Chairperson of the Financial Stability Oversight Council (Council) and 
who has authority over the Office of Financial Research (OFR). As you 
know, Congress recently created both organizations pursuant to the
Dodd-Frank Wall Street Reform and Consumer Protection Act (the Act). 
We appreciate the opportunity to review the Government Accountability 
Office's (GAO) draft report GAO-12-886 (the Draft Report) regarding 
the stand-up and operations of the Council and the OFR. 

We strongly support GAO's important oversight function, and we 
appreciate the constructive input and feedback from your team during 
the course of this audit. Although we have some concerns with the 
Draft Report's findings and recommendations, we broadly agree that 
both the Council and OFR have taken important steps to strengthen 
transparency and accountability, and we are committed to continuing 
those efforts in the future. 

The Council and the OFR: 

Since the passage of the Act, the Council has moved quickly to fulfill 
its statutory mission and to promote greater collaboration and 
coordination among its members. The Draft Report describes many of 
these actions. For example, in the past year, the Council issued a 
final rule and guidance relating to the designation of nonbank 
financial companies for Federal Reserve supervision and enhanced 
prudential standards and is currently analyzing firms pursuant to the 
rule and guidance. It also designated eight systemically important 
financial market utilities (FMUs) that will be subject to enhanced 
risk management standards. The Council continued to monitor potential 
risks to U.S. financial stability and submitted three reports to 
Congress. Moreover, the meetings of the entire Council-—as well as its 
interagency committees-—served as opportunities for discussion, 
collaboration, and coordination among the member agencies implementing 
the Act. 

Similarly, the OFR has made progress in building a strong organization 
and has begun delivering on its core research and data-related 
mandates. In July, the OFR issued its first annual report to
Congress, which includes extensive information about risks to 
financial stability, the OFR's activities, and its research and data-
related agenda, including the types and sources of data it will need 
to fulfill its mission. The OFR has begun to provide analytic and data-
related support to the Council, has launched both a working paper and 
a seminar series for research on financial stability and risk 
management, and has played a leadership role in achieving global 
acceptance of a Legal Entity Identifier (LEI) to help regulators and 
market participants identify and mitigate threats to the financial 
system. 

Transparency and Accountability: 

Both the Council and the OFR are firmly committed to operating in an 
open and transparent manner. As discussed in the Draft Report, the 
Council has conducted several voluntary rulemaking processes, which 
have included notice and public comment periods. It has adopted a 
transparency policy, which provides that Council meetings will be open 
to the public whenever possible. Separately, Treasury and other 
Council members have adopted policies that provide disclosure of 
meetings with the public regarding the implementation of the Act. 
Treasury has disclosed on its public website hundreds of meetings, 
many of which involve the Council or issues relevant to it. And 
Council members communicate frequently with Members of Congress and 
their staffs, including through public testimony, briefings, and 
meetings. 

The OFR and its staff also have worked to promote transparency and 
accountability. They have testified publicly before Congress, 
responded to numerous requests for information from various oversight 
bodies, and posted key operational materials and outputs on the OFR's 
website. To further strengthen accountability, the OFR is working to 
establish and enhance policies, procedures, and internal controls 
related to budget, human capital, planning, data security, and other 
operational matters. And the OFR soon will announce the membership of 
its Financial Research Advisory Committee, which will strengthen 
further the organization's engagement with industry experts and 
academics. 

The Draft Report acknowledges the efforts of both organizations. 
Nonetheless, it is important to emphasize the broader context: both 
the Council and the OFR are relatively new, start-up organizations 
that have been working hard over the past two years to hire staff, 
establish internal procedures, communicate with the public, and 
fulfill their statutory responsibilities. Although both organizations 
have accomplished much, we recognize that there is still much to do. 

GAO's Recommendations: 

We will carefully consider the final report's findings and 
recommendations. Since most are addressed to the Council, Secretary 
Geithner, in his capacity as Chairperson, will share the final 
report's recommendations with the Council members for their review and 
consideration. 

We would like to highlight Treasury's initial reaction to several of 
your recommendations. First, the Draft Report proposes that the 
Council should clarify the responsibilities of the Council and the OFR 
for monitoring threats to financial stability—-including the 
systematic sharing of key financial risk indicators--and should 
establish collaboration and coordination policies. To the extent that 
GAO is suggesting any existing confusion or overlap of 
responsibilities, we disagree. The Draft Report does not cite any 
examples of overlap between the work of the Council and the
OFR, and we believe both organizations are working together to pursue 
their distinct-—but complementary—-statutory missions. Moreover, the 
OFR has developed a collection of metrics and indicators related to 
financial stability, referred to as the "Financial Stability Monitor." 
We expect that the Financial Stability Monitor will be shared with 
Council members and member agencies and will provide a systematic 
approach to sharing key financial risk indicators. 

Second, the Draft Report recommends that the Council should conduct an 
analysis of the broad economic impact of designating FMUs and nonbank 
financial companies. The Council will assess, on a periodic basis, 
whether designated FMUs or nonbank financial companies should continue 
to be subject to enhanced prudential standards. In conducting such 
reviews, we expect the Council will consider the effects on the 
financial system resulting from designation. 

The Draft Report addresses other recommendations to the OFR. We agree 
that the OFR should implement a robust strategic planning and 
performance management system as the office grows. In fact, we believe 
the OFR is implementing such a system. The OFR published its first 
strategic plan in March, which describes the office's long-term 
strategic goals and objectives, as well as medium-term and FY 2012-
specific implementation priorities. The strategic plan also includes 
appendices about the OFR's organization and workforce plan, 
governance, transparency, and oversight. As anticipated in this plan, 
the OFR has now developed performance measures and linked its 
planning, project management, human capital, and budget activities to 
its strategic goals and objectives—work that will be included as part 
of the Administration's FY 2014 budget submission to Congress. 

The Draft Report also includes recommendations regarding the OFR's 
communications strategy that we believe are consistent with the 
office's ongoing efforts. The OFR is assembling a dedicated staff to 
support effective communications with the public, as well as outreach 
to industry and other key partners. In addition, the OFR recently 
modified its website to enable users to receive updates when new 
content is added, and it is working to support a more user-friendly 
design and page layout. Separately, the Council's website is being 
redesigned to improve overall usability and navigation. 

Thank you again for the opportunity to review and comment on the Draft 
Report. We value GAO's input and recommendations, and we look forward 
to working with you in the future. 

Sincerely,  

Signed by: 

Mary J. Miller 

[End of section] 

Appendix IV: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

A. Nicole Clowers, (202) 512-8678 or clowersa@gao.gov: 

Staff Acknowledgments: 

In addition to the contact named above, Kay Kuhlman (Assistant 
Director), Holland Avery, Nancy Barry, Emily Chalmers, Rudy Chatlos, 
Rachel DeMarcus, Christopher Forys, Michael Hoffman, Marc Molino, 
Susan Sawtelle, Rachel Siegel, and Henry Wray made significant 
contributions to this report. Other assistance was provided by Janet 
Eackloff and David Martin. 

[End of section] 

Footnotes: 

[1] Pub. L. No. 111-203, 124 Stat. 1376 (2010). 

[2] The provisions of the Dodd-Frank Act dealing with FSOC are 
contained primarily in subtitle A of title I, §§ 111-123, codified at 
12 U.S.C. §§ 5321-5333, and title VIII, codified at 12 U.S.C. §§ 5461-
5472. The following sections of this report describe FSOC's specific 
functions in detail. 

[3] The provisions dealing with OFR are contained primarily in 
subtitle B of title I, §§ 151-156, codified at 12 U.S.C. §§ 5341-5346. 

[4] The Council of Inspectors General on Financial Oversight, which 
was created by the Dodd-Frank Act, is made up of the inspectors 
general of eight federal agencies--the Federal Reserve, Commodity 
Futures Trading Commission (CFTC), Department of Housing and Urban 
Development, Treasury, Federal Deposit Insurance Corporation (FDIC), 
Federal Housing Finance Agency, National Credit Union Administration, 
and Securities and Exchange Commission (SEC)--and the Special 
Inspector General of the Troubled Asset Relief Program. 

[5] GAO, Results-Oriented Government: Practices That Can Help Enhance 
and Sustain Collaboration among Federal Agencies, [hyperlink, 
http://www.gao.gov/products/GAO-06-15] (Washington, D.C.: Oct. 21, 
2005). 

[6] See for example, GAO, Financial Regulation: Modernization of the 
Financial Services Regulatory System, [hyperlink, 
http://www.gao.gov/products/GAO/T-GGD-95-121] (Washington, D.C.: Mar. 
15, 1995); Long-Term Capital Management: Regulators Need to Focus 
Greater Attention on Systemic Risk, [hyperlink, 
http://www.gao.gov/products/GAO/GGD-00-3] (Washington, D.C.: Oct. 29, 
1999); Financial Regulation: Industry Changes Prompt Need to 
Reconsider U.S. Regulatory Structure, [hyperlink, 
http://www.gao.gov/products/GAO-05-61] (Washington, D.C.: Oct. 6, 
2004); Financial Regulation: A Framework for Crafting and Assessing 
Proposals to Modernize the Outdated U.S. Financial Regulatory System, 
[hyperlink, http://www.gao.gov/products/GAO-09-216] (Washington, D.C.: 
Jan. 8, 2009); and High-Risk Series: An Update, [hyperlink, 
http://www.gao.gov/products/GAO-09-271] (Washington, D.C.: January 
2009). 

[7] [hyperlink, http://www.gao.gov/products/GAO-09-216]. The framework 
included a total of nine characteristics: clearly defined regulatory 
goals; appropriately comprehensive; system-wide focus; flexibility and 
adaptability; efficiency and effectiveness; consistent consumer and 
investor protections; independence, prominence, authority, and 
accountability for regulators; consistent financial oversight; and 
minimal taxpayer exposure. 

[8] [hyperlink, http://www.gao.gov/products/GAO-09-271]. 

[9] Financial market utilities are multilateral organizations such as 
payment systems, central securities depositories, and central 
counterparties that provide the essential infrastructure to clear and 
settle payments and other financial transactions. 

[10] Treasury, Financial Research Fund FY 2013 President's Budget 
Submission accessed Feb. 22, 2012, [hyperlink, 
http://www.treasury.gov/about/budget-performance/Documents/14-
FY2013FRFCJ.pdf]. 

[11] As will be discussed later in this report, the Dodd-Frank Act 
provided that FSOC may determine whether a nonbank financial company 
shall be supervised by the Federal Reserve and subject to prudential 
standards if it determines that material financial distress at the 
nonbank financial company, or the nature, scope, size, scale, 
concentration, interconnectedness, or mix of the activities of the 
company, could pose a threat to the financial stability of the United 
States. The act lists specific factors for FSOC to consider in making 
these determinations along with any other risk-related factors it 
deems appropriate. Large bank holding companies (with total 
consolidated assets of $50 billion or more) are automatically subject 
to enhanced supervision and prudential standards, according to the 
act. The Secretary of the Treasury, with the approval of FSOC, 
establishes regulations for determining the assessments levied on 
these nonbank financial companies and large bank holding companies. 
The assessments are to take into account differences among the 
companies based on the considerations for establishing prudential 
standards and are to equal OFR's total expenses. 

[12] The budget submission also included payments to FDIC for 
reimbursement of implementation expenses, such as rule writing and 
resolution planning, for about $5 million in fiscal year 2012 and 
about $11 million in fiscal year 2013. 

[13] A substantial portion of OFR's basic services are performed 
through reimbursable arrangements with Treasury and through other 
interagency arrangements that fall under the contractual services 
category. Specifically, this includes reimbursable support from 
departmental offices within Treasury; benefits from OCC; and services 
from the Bureau of Public Debt including human resource, procurement, 
and financial management services. 

[14] GAO, Dodd-Frank Act Regulations: Implementation Could Benefit 
from Additional Analyses and Coordination, [hyperlink, 
http://www.gao.gov/products/GAO-12-151] (Washington, D.C.: Nov. 10, 
2011). 

[15] Basel II is a risk-based capital framework for banks based on an 
international accord. For more information on Basel II adoption in the 
United States, see GAO, Risk-Based Capital: Bank Regulators Need to 
Improve Transparency and Overcome Impediments to Finalizing the 
Proposed Basel II Framework, [hyperlink, 
http://www.gao.gov/products/GAO-07-253] (Washington, D.C.: Feb. 15, 
2007) and Risk-Based Capital: New Basel II Rules Reduced Certain 
Competitive Concerns, but Bank Regulators Should Address Remaining 
Uncertainties, [hyperlink, http://www.gao.gov/products/GAO-08-953] 
(Washington, D.C.: Sept. 12, 2008). 

[16] OFR's shorter-term activities will be discussed later in this 
report. 

[17] GAO, Millennium Challenge Corporation: Progress Made on Key 
Challenges in First Year of Operations, [hyperlink, 
http://www.gao.gov/products/GAO-05-625T] (Washington, D.C.: Apr. 27, 
2005) and Troubled Asset Relief Program: Additional Actions Needed to 
Better Ensure Integrity, Accountability, and Transparency, [hyperlink, 
http://www.gao.gov/products/GAO-09-161] (Washington, D.C.: Dec. 2, 
2008). 

[18] See GAO, Internal Control: Standards for Internal Control in the 
Federal Government, [hyperlink, 
http://www.gao.gov/products/GAO/AIMD-00-21.3.1] (Washington, D.C.: 
November 1999); and Internal Control Standards: Internal Control 
Management and Evaluation Tool, [hyperlink, 
http://www.gao.gov/products/GAO-01-1008G] (Washington, D.C.: August 
2001). These standards reflect updates in private sector internal 
control guidance, including the issuance of Internal Control--
Integrated Framework by the Committee of Sponsoring Organizations of 
the Treadway Commission (COSO). Also see COSO, Enterprise Risk 
Management--Integrated Framework (September 2004). For the importance 
of objectives and performance measures in determining accountability 
and efficiency, see, for example, GAO, Results-Oriented Government: 
GPRA Has Established a Solid Foundation for Achieving Greater Results, 
[hyperlink, http://www.gao.gov/products/GAO-04-38] (Washington, D.C.: 
Mar. 10, 2004) and Government Performance: GPRA Modernization Act 
Provides Opportunities to Help Address Fiscal, Performance, and 
Management Challenges, [hyperlink, 
http://www.gao.gov/products/GAO-11-466T] (Washington, D.C.: Mar. 16, 
2011). 

[19] For a detailed description of all the committees, see appendix II. 

[20] These authorities describe special jobs and situations for which 
it is impractical to use standard qualification requirements and to 
rate applicants using traditional competitive procedures. Under the 
Dodd-Frank Act, OFR must seek to maintain comparability of 
compensation and benefits with other Financial Institutions Reform, 
Recovery, and Enforcement Act agencies. Accordingly, OFR has adopted 
the pay and compensation system available at OCC to meet the 
requirement of the act. 

[21] When OFR has a confirmed director, it will have some autonomy. 
For example, according to the Dodd-Frank Act, the director's 
congressional testimony is not to be subject to prior approval by any 
agency including Treasury or any other FSOC member. 

[22] Council of Inspectors General on Financial Oversight, Audit of 
the Financial Stability Oversight Council's Controls over Non-public 
Information (Washington, D.C.: June 2012). 

[23] See GAO, Executive Guide: Effectively Implementing the Government 
Performance and Results Act, [hyperlink, 
http://www.gao.gov/products/GAO/GGD-96-118] (Washington, D.C.: June 
1996) and Results Oriented Cultures: Implementation Steps to Assist 
Mergers and Organizational Transformations, [hyperlink, 
http://www.gao.gov/products/GAO-03-669] (Washington, D.C.: July 2, 
2003). 

[24] Pub. L. No. 103-62, 107 Stat. 286 (1993), and as amended by the 
GPRA Modernization Act of 2010, Pub. L. No. 111-352, 124 Stat. 3866 
(2011). Performance plans or budgets are intended to provide the 
direct linkage between an agency's longer-term goals (as defined in 
the strategic plan) and what its managers and staff are doing on a day-
to-day basis and include how resources will be used to accomplish 
those goals. Performance updates provide feedback to managers, 
policymakers, and the public on what was actually accomplished for the 
resources expended. 

[25] Agencies expending less than $20 million annually may request 
such an exemption. See 31 U.S.C. § 1117. 

[26] OFR's budget submission will be included as part of the 
President's fiscal year 2014 budget submission that is expected to be 
released in February 2013. 

[27] Department of the Treasury, Office of the Inspector General, Dodd 
Frank Act: Treasury Has Made Progress to Stand-up the Office of 
Financial Research (Washington, D.C.: June 27, 2012). The report noted 
that OFR took longer than expected to finalize a comprehensive 
implementation plan, which the OIG defined as including OFR's 
strategic framework, strategic roadmap, other planning documents and 
individual project plans. The report stated that progress going 
forward would depend on its ability to execute its plan and 
recommended that OFR's Chief Operating Officer monitor progress in 
carrying out the activities in the comprehensive implementation plan 
and take timely action to address any slippages or otherwise make 
adjustments to achieve the objectives and keep to the time frames in 
the plan. 

[28] The Dodd-Frank Act requires individual members to submit a signed 
statement to Congress to accompany many FSOC reports saying whether 
they believe that FSOC, the government, and the private sector are 
taking all reasonable steps to ensure financial stability and mitigate 
systemic risk that would negatively affect the economy. If they did 
not believe this the statement would need to indicate what actions the 
member believes should be taken. 12 U.S.C. § 5322(b). 

[29] FSOC officials noted that the procedures were marked draft 
because this is a new process and the committee expected to change the 
procedures based on its initial experience. 

[30] In some circumstances, such as rapidly evolving risks, the 
discussion can be fast tracked to FSOC members for a discussion of 
potential responses. 

[31] Dimitrios Bisias, Mark Flood, Andrew W. Lo, and Stavros 
Valavanis, A Survey of Systemic Risk Analytics, Office of Financial 
Research Working Paper #0001 (Washington, D.C.: Jan. 15, 2012). 

[32] The Macroprudential Toolkit: Measurement and Analysis. Conference 
held in Washington, DC: December 1-2, 2011. 

[33] Such a data-sharing exercise is akin to what the International 
Monetary Fund proposes with its Financial Soundness Indicators. See 
International Monetary Fund, Financial Soundness Indicators: 
Compilation Guide (Washington, D.C.: March 2006). 

[34] Office of Financial Research, 2012 Annual Report (Washington, 
D.C.: July 2012). 

[35] The legal entity identifier is a new a universal standard for 
identifying all parties to financial contracts. This will be discussed 
in more detail later in the report. 

[36] FSOC, Minutes of the Financial Stability Council: held October 
11, 2011, accessed Jan. 17, 2012, [hyperlink, 
http://www.treasury.gov/initiatives/fsoc/Pages/council-meeting-
minutes.aspx]. 

[37] See, GAO Troubled Asset Relief Program: Continued Stewardship 
Needed as Treasury Develops Strategies for Monitoring and Divesting 
Financial Interests in Chrysler and GM, [hyperlink, 
http://www.gao.gov/products/GAO-10-151] (Washington, D.C.: Nov. 2, 
2009). 

[38] 12 U.S.C. § 5322(a)(2)(E). 

[39] 5 U.S.C. App. 2. 

[40] The Dodd-Frank Act provides that member agencies, in consultation 
with OFR, must implement regulations promulgated by OFR to standardize 
the types and formats of data reported and collected on behalf of 
FSOC. However, it also explicitly notes that this provision does not 
supersede or interfere with the independent authority of a member 
agency under other law to collect data in such format as the agency 
requires. 

[41] The President's Working Group on Financial Markets was 
established by an executive order in 1988, in response to the 1987 
market crash. Executive Order 12631 of March 18, 1988, 15 U.S.C. § 78b 
note. The Federal Financial Institutions Examination Council (FFIEC) 
was established in 1979, pursuant to the Federal Financial 
Institutions Examination Council Act of 1978, 12 U.S.C. §§ 3301-3311. 
It is a formal interagency body empowered to prescribe uniform 
principles, standards, and report forms for the federal examination of 
financial institutions by the Federal Reserve, National Credit Union 
Administration, FDIC, OCC, and the State Liaison Committee, and to 
make recommendations to promote uniformity in the supervision of these 
financial institutions. The Dodd-Frank Act added the Consumer 
Financial Protection Bureau to FFIEC. The President's Working Group 
and FFIEC remain in place. 

[42] The Group of 20 (G20) is a group of finance ministers and central 
bank governors from 19 countries--including the United States--and the 
EU. The Financial Stability Board brings together from the G20 
countries central bank officials, finance and treasury officials, and 
financial institution regulators; officials of the International 
Monetary Fund and World Bank, and representatives from non-G20 
countries to address issues related to global financial stability. 

[43] See [hyperlink, http://www.gao.gov/products/GAO-06-15]. Other 
practices include developing mechanisms to monitor, evaluate, and 
report on results; reinforcing agency accountability for collaborative 
efforts through agency plans and reports; and reinforcing individual 
accountability for collaborative efforts through performance 
management systems. 

[44] See [hyperlink, http://www.gao.gov/products/GAO-12-151]. 

[45] See [hyperlink, http://www.gao.gov/products/GAO-12-151]. 

[46] Section 102(a)(4) of the Dodd-Frank Act defines a nonbank 
financial company for purposes of title I of the act as a domestic or 
foreign company (other than a bank holding company or certain other 
types of firms) that is predominantly engaged in financial activities 
as specified in section 102(a)(6). 

[47] The Dodd-Frank Act also subjects large bank holding companies 
with total consolidated assets of $50 billion or more to enhanced 
supervision and prudential standards. No FSOC designation is required 
for these bank holding companies to be subjected to enhanced 
supervision and standards. In addition, some potential nonbank holding 
companies that may be designated are already subject to some Federal 
Reserve oversight because they are thrift holding companies. The Dodd-
Frank Act transferred the oversight of these companies from the Office 
of Thrift Supervision to the Federal Reserve. 

[48] Other Dodd-Frank provisions impose additional requirements on 
large bank holding companies and nonbank financial companies 
designated by FSOC. These include a requirement that the Federal 
Reserve subject designated nonbank financial companies that engage in 
proprietary trading to additional capital requirements, the authority 
of CFTC to impose limitations on the ability of those companies to 
control derivative clearing organizations and exchanges, and the 
ability of FDIC to impose risk-based assessments on large bank holding 
companies and designated nonbank financial companies if necessary to 
repay any obligations issued by FDIC to Treasury under the orderly 
liquidation authority. 

[49] 5 U.S.C. § 552. 

[50] Pub. L. No. 111-203, § 112(d)(5), 124 Stat. 1397. 

[51] A regulatory action is determined to be "economically 
significant" if the Office of Management and Budget determines that it 
is likely to have an annual effect on the economy of $100 million or 
more or adversely affect in a material way the economy, a sector of 
the economy, productivity, competition, jobs, the environment, public 
health or safety, or state, local, or tribal governments or 
communities. 

[52] Expert opinions differ on whether certain provisions in title II 
of the Dodd-Frank Act will lessen any cost advantage certain 
institutions have enjoyed. 

[53] In [hyperlink, http://www.gao.gov/products/GAO-12-151] we note 
the importance of setting up baselines early to support later 
retrospective reviews of individual rules. In addition, we reported 
that in light of its various statutory requirements, FSOC plans to 
assess the future impact of significant Dodd-Frank rules. Given these 
plans, we previously recommended that FSOC direct OFR to begin 
collecting the necessary data to carry out these analyses. 

[54] The Dodd-Frank Act also mandated that the FSOC Chairperson report 
on the macroeconomic effects of risk retention requirements and the 
effects of the size and complexity of financial institutions on 
capital market efficiency and economic growth by January 2011. The 
National Credit Union Authority Clarification Act required FSOC to 
report on actions taken in response to a mandated study by GAO on the 
National Credit Union Administration's supervision of corporate credit 
unions and implementation of prompt corrective action. The report was 
issued in June 2012. 

[55] The Executive Summary of FSOC's 2011 Annual Report acknowledges 
that there is a long run imbalance in the U.S. budget and that a 
solution to that imbalance is crucial to U.S. financial stability. 
However, the body of the report says that the current pricing of U.S. 
debt implies that markets assume that a solution to the long-term 
imbalance will be found, and the issue is not included as an emerging 
threat. 

[56] FSOC's 2012 Annual Report notes that there are both short-term 
and longer-term risks associated with the U.S. fiscal situation saying 
that the situation represents a source of uncertainty for financial 
markets and the real economy. OFR's 2012 Annual Report identifies the 
U.S. fiscal situation as a concern noting that the risk of a sharp 
change in the demand for U.S. Treasury securities potentially 
threatens U.S. financial stability. Both reports continue to note that 
in the short run yields on U.S. debt are very low. 

[57] Along with their FSOC support staff, we interviewed the 
Independent Member with Insurance Expertise, the State Insurance 
Commissioner, and the State Securities Commissioner. We also 
interviewed the Conference of State Banking Supervisors staff 
supporting the State Banking Supervisor member, but not the member 
himself. For those members who are heads of federal agencies, we 
generally held interviews with senior agency officials, but not with 
the FSOC principal member. We did not interview anyone at the Federal 
Insurance Office but did provide them with an opportunity to provide 
their views and arrange an interview, if needed. 

[58] GAO, Dodd-Frank Act Regulations: Implementation Could Benefit 
from Additional Analyses and Coordination, [hyperlink, 
http://www.gao.gov/products/GAO-12-151] (Washington, D.C.: Nov. 10, 
2011). 

[End of section] 

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