ICI Argues that Mutual Funds Should Not Be Subject to Federal Reserve Bank Risk Oversight Rules

November 12, 2010

The Dodd-Frank Act created the Financial Stability Oversight Council, a new government body that has the authority to recommend that the Federal Reserve Bank and other agencies strengthen rules to reduce risk at banks as well as non-bank financial firms.

Among other things, the Council is considering whether mutual funds, hedge funds, private-equity firms, life insurers and other companies need extra oversight because they pose a potential risk to financial stability.  The Council is expected to issue its recommendation next year.

The Investment Company Institute (ICI) submitted a letter to the Council arguing that mutual funds pose little threat to the U.S. financial system and should remain beyond the reach of Federal Reserve oversight.  Specifically, the ICI stated that:

“Many characteristics of funds — including their simple capital structure, limited used of leverage and comprehensive regulatory scheme — put funds at the ‘less risky’ end of the spectrum when considering the potential for systemic risk.”

The Council has been accepting public comment on what criteria should be used to determine which companies should be the target of increased oversight.  It supplants the smaller President’s Working Group on Financial Markets, formed in response to the October 1987 stock-market crash.

Click here to access the ICI letter.


Exchange-Traded Funds (ETFs), Mutual Funds, Regulatory