Financial Stability and Bank Agency Discretion
Following the 2008 global financial crisis, new mandates to address “financial stability” and “systemic risk” expanded financial regulators’ discretion considerably. By predicating action upon these terms, the banking agencies took up issues beyond the express terms of their statutory mandates. Given the vagueness of the terms, actions taken on the basis of financial stability could easily evade congressional scrutiny and accompanying accountability. As a result, the pursuit of financial stability goals over the past fifteen years has fueled the perception that a regulatory “expertocracy” governs the field of banking, rather than market forces.
This Essay discusses four areas where financial stability or systemic risk mandates—either express or assumed—empowered bank regulators and supervisors to substitute their judgment for that of Congress: (1) the Financial Stability Oversight Council’s power to designate nonbank systemically important financial institutions; (2) the Federal Deposit Insurance Corporation’s power to bail out uninsured bank depositors; (3) the adoption of international standards of bank regulation through Basel; and (4) the Federal Reserve and Office of the Comptroller of the Currency’s power to deny bank merger applications on financial stability grounds.