Davis Polk partner David Portilla was featured in Capitol Account discussing the Treasury Department’s Financial Stability Oversight Council and its recent proposals that make it easier to designate non-bank financial companies for increased Federal Reserve oversight, as well as bank merger policy, capital increases, and his recent testimony before a House Financial Services subcommittee on stablecoins.

David served as a senior policy advisor to the Financial Stability Oversight Council at its launch following the 2010 Dodd-Frank Act.

Discussing his role establishing the FSOC, David said, “It was like a startup in the federal government – it was a cool opportunity. There was no history of how things were done, so you got to think about what the right way to do it, unburdened by historical practices. Because it’s an inter-agency council, we worked really closely with staff from across the government. The issues were really hard and a lot of them are still being debated today, which shows you how challenging some of the questions are.”

When asked about a recent FSOC rule change regarding the designation of individual firms as SIFIs, he explained that “the way they seem to be thinking about it is, we should look at activities but we should have the ability to [designate], depending on the circumstances.”

David also noted that there has been a slight pivot to the asset management sector. “When you look at the comments of Under Secretary [Nellie] Liang, Secretary Yellen and Chair [Gary] Gensler at the SEC, they seem to be saying: ‘There are broad-based practices that we believe deserve attention,’” he said, “The one they talk about the most in their speeches is margining practices for bilateral uncleared repo. That implies an activities-based type of analysis.”

Asked if he thinks there are a lot more designations coming soon, David responded, “That depends on the activity or the issue that’s being analyzed. Is it an issue that lends itself to a broad-based activities centered policy response? Or is there some entity out there that is sui generis and needs an entity based-response? That seems to be the mindset they have.”

Switching topics to bank merger policy, David said, “Figuring out how to, again, strike that balance so there are opportunities for healthy consolidation, is important. If policy makers have constructed a framework that applies more stringent regulation to firms, in theory it should be okay for them to be a little bit bigger because they’re now subject to this more stringent regulation.”

“Davis Polk’s Portilla Talks FSOC and Whether Fund Giants Are Really In Its Crosshairs,” Capitol Account (June 9, 2023)

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