Editor’s note: Morning Money is a free version of POLITICO Pro Financial Services morning newsletter, which is delivered to our subscribers each morning at 5:15 a.m. The POLITICO Pro platform combines the news you need with tools you can use to take action on the day’s biggest stories. Act on the news with POLITICO Pro. There was a collective groan across Wall Street when the Financial Stability Oversight Council moved to reverse Trump-era rules that made it harder to beef up oversight of big nonbanks. Now they’re gearing up for a fight. Global industry groups like the Investment Company Institute, which represents mutual funds, and the Managed Funds Association, which counts hedge funds and private credit firms as members, have started to press lawmakers to revive a 2018 bill that would have made it harder for FSOC to slap the dreaded “systemically important financial institution” label on nonbanks, sources told your MM host. “This was something that we’d been talking to members of Congress even before we even knew FSOC was going to have its meeting,” Investment Company Institute President and CEO Eric Pan, whose Washington-based group represents the mutual fund industry, said Wednesday. “We still think this is good legislation and we will continue to express support for this legislation.” The aims of the 2017 bill, which passed a Republican-led House by almost a 3-1 margin, were made somewhat moot after then-Treasury Secretary Steven Mnuchin overhauled FSOC’s mission to focus on systemically risky activities rather than individual companies. Still, Rep. Bill Foster (D-Ill.) and Sen. Mike Rounds (R-S.D.) introduced similar legislation in recent years. Mnuchin’s reforms have been roundly criticized by Biden officials, led by Treasury Secretary Janet Yellen, who on Friday kicked off a process that would give FSOC more flexibility to identify vulnerabilities at individual insurance companies, mutual funds and hedge funds, as well as mutual funds and money market funds. While it’s unclear if regulators had any specific institutions in mind during Friday’s FSOC meeting, Yellen again cited her concerns about risks posed by open-ended mutual funds and money market funds in an opening statement. Similarly, SEC Chair Gary Gensler name-checked the challenges that arose after the hedge fund Long-Term Capital Management collapsed in 1998. Any attempt to tag institutions within those fields as SIFIs — which aren’t subject to the same level of oversight as banks (who, incidentally, applauded Friday’s decision) — is bound to raise hackles on Wall Street. Asset managers and insurance companies spent years lobbying to curb FSOC’s ability to subject nonbanks to Federal Reserve supervision. Expect the incoming comment letters to reflect those frustrations. “My preliminary view on the [FSOC’s] analytic framework is that it's not very analytically rigorous,” Pan said. “It's such a high, broad framework, that it sort of just says everybody is potentially subject to designation.” IT’S THURSDAY — What are you hearing on First Republic? We want to know. Send tips, gossip and suggestions to Sam at ssutton@politico.com and Zach at zwarmbrodt@politico.com.
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