New Bill Adds Procedural Speed Bumps to Designating Systemically Risky Financial Firms

The Financial Stability Oversight Council Improvement Act of 2025 is short, but it packs a punch for anyone who remembers the 2008 financial crisis. This bill targets the Financial Stability Oversight Council (FSOC)—the group established after 2008 to spot and regulate large financial companies whose failure could tank the whole economy (think AIG, but in the future).

Specifically, the bill changes the process FSOC must follow before it can vote to designate a nonbank financial company (like a big hedge fund or insurer) for stricter federal oversight. Before FSOC can even hold that vote, it must now formally determine that three other options are either “impracticable or insufficient” to mitigate the potential threat: action by FSOC itself, action by the company’s primary regulator, or action taken by the company under a written plan. This new requirement, found in Section 2, must be made after consulting with the company and its primary regulator.

The New Hurdle: Proving Nothing Else Works

FSOC’s power to designate a firm as 'systemically important' is its biggest tool. Once designated, a company faces stricter rules, higher capital requirements, and more intense scrutiny, which is why firms fight it hard. This bill essentially forces FSOC to prove that designation is the absolute last resort. Think of it like this: Before your boss can fire you (the designation), they first have to prove that a warning, a transfer, or you fixing the problem on your own (the alternatives) wouldn't work. It’s a significant procedural speed bump.

For the large nonbank financial companies, this is a win for due process. It ensures that the most severe regulatory action is used only when every other option has been exhausted. If you run a large insurance company, this gives you and your regulator more leverage and time to argue that you can handle your own risks without the federal government stepping in.

The Risk of Regulatory Delay

While procedural fairness is important, the downside here is time. Systemic risk doesn't always wait for regulators to finish their homework. If a large firm is quietly taking on excessive risk, the FSOC's ability to act quickly is paramount. This new requirement introduces multiple consultation steps and a formal finding that alternatives are “impracticable or insufficient”—terms that are vague and open to legal challenge and political maneuvering.

If FSOC has to spend months building a case that every alternative solution won’t work, that delay could allow a looming financial threat to grow into a full-blown crisis before the regulators can impose the necessary guardrails. For consumers and the general public, this means that the mechanism designed to prevent the next financial meltdown gets slower and more complicated, increasing the risk that we all bear the cost if a major nonbank firm collapses.