ABSTRACT

Activities-Based Regulation and Systemic Risk [Updated March 11, 2019]   [open pdf - 557KB]

From the Document: "Past financial crises have shown that systemic risk can emanate from financial firms or activities. It can be caused by the failure of a large firm (hence, the moniker 'too big to fail') or it can be caused by correlated losses among many small market participants. Although historical financial crises have centered on banks, nonbank financial firms were also a source of instability in the 2007-2009 crisis. [...] As discussed in this Insight, all four of the nonbanks that were designated by FSOC [Financial Stability Oversight Council] have since been dedesignated, and the size threshold for enhanced regulation of banks was recently increased. In March 2019, FSOC issued proposed guidance stating it would give precedence to an 'activities-based' systemic risk regulation--regulating particular financial activities or practices to prevent them from causing financial instability--over an institution-based regulation for nonbanks. The two approaches, however, need not be mutually exclusive. International insurance regulation has also moved away from a focus on institution-based regulation and toward activities-based regulation recently.'"

Report Number:
CRS Insight, IN10997
Author:
Publisher:
Date:
2019-03-11
Copyright:
Public Domain
Retrieved From:
Congressional Research Service: https://crsreports.congress.gov/
Format:
pdf
Media Type:
application/pdf
URL:
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