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Home / Media / Statement by Dr. Mark A. Calabria Regarding the Financial Stability Oversight Council Principals Meeting

Statement by Dr. Mark A. Calabria Regarding the Financial Stability Oversight Council Principals Meeting



Under the Dodd-Frank Act, one of the Council’s core purposes is “to promote market discipline, by eliminating expectations on the part of shareholders, creditors, and counterparties of” large financial institutions “that the Government will shield them from losses…” Simply stated, the Council’s job is to end bailouts.     

I remain concerned that the actions taken just over a decade ago, such as the TARP, reinforced the expectation of bailouts. I also remain concerned that as memories of the 2008 financial crisis fade, so does the resolve for ending bailouts. Dodd-Frank ultimately leaves ending bailouts to the discretion of regulators, and I, for one, am committed to using all the tools at my disposal to do just that. I believe the nonbank guidance is an important step toward fulfilling that purpose and ending bailouts.

Some of the previous nonbank designations were done in such a manner that raised the possibility that designated entities would be perceived as “too big to fail.” In doing so, the Council ran the risk that a designation would distort market expectations and reduce market discipline, contrary to its statutory purposes. I believe the approach the Council adopted yesterday reduces that risk.

Some commentators have suggested that this guidance eliminates the possibility of future nonbank designations. If I believed that claim to be correct, I would not have voted for this guidance. However, I do not believe yesterday’s guidance forecloses the possibility of future designations. For instance, it is hard for me to imagine an entity could be systemic without that entity engaging in activities or practices that are systemic. In fact, I believe the guidance that the Council adopted yesterday will enable the Council to begin the process of considering an activities-based review of mortgage finance markets. Given that our mortgage and housing markets have been at the center of almost every recession and financial crisis in American history, I welcome the start of that process.

In addition to property markets, there is the global systemic importance of sovereign debt markets. I believe this is an area where an activities approach is urgently needed and is perhaps the only avenue of redress. While the Council’s authorities do not allow us to designate foreign or domestic governments as systemically important, there is no denying the central role that sovereign debt has played in the history of global financial crises.

Counter to the conventional narrative, it was not any single entity or narrow group of entities that caused the financial crisis. For instance, we were already in a recession for at least a year before the failure of Lehman. It was a property boom and bust that drove the crisis, which was obviously the result of a set of activities and practices, not a single entity.

Yesterday’s guidance improves the Council’s process of engaging with nonbanks under consideration for designation by making it more efficient, transparent, and robust. Adopting this guidance enables the Council to begin this process of consideration – not to prejudge or foreclose any conclusions. This is critical to fulfilling this Council’s duty to promote financial stability and end bailouts.



The Federal Housing Finance Agency regulates Fannie Mae, Freddie Mac and the 11 Federal Home Loan Banks. These government-sponsored enterprises provide more than $6.3 trillion in funding for the U.S. mortgage markets and financial institutions. Additional information is available at www.FHFA.gov, on Twitter, @FHFA, YouTube, Facebook, and LinkedIn.

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