FSOC Open Meeting, April 3, 2012

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Dodd-Frank Timeline, Supervision and Regulation of Certain Nonbank Financial Companies, FSOC
2nd Proposal Date Final Rule Issue Effective Date
October 18, 2011 April 3, 2012 May 11, 2012


Contents

Meeting Agenda

The Financial Stability Oversight Council (FSOC) convened its sixth meeting at the U.S. Department of the Treasury on July 18, 2011. Among the topics discussed:

  • Approval of a final rule and interpretive guidance on the Council's authority to require supervision and regulation of certain nonbank financial companies;
  • a final rule regarding the Freedom of Information Act; and
  • the minutes of the Council's meeting on February 1, 2012.[1]

On May 22, 2012, the FSOC approved its initial list of clearing houses that would be deemed "systemically important." While the list was not made public, several of the large clearing houses, including those run by CME Group and IntercontinentalExchange confirmed that they were on the FSOC list.[2]

View webcast here.


Final Rule: Authority to Require Supervision and Regulation of Certain Nonbank Financial Companies

The rule sets forth the procedures and practices for the Council’s determinations regarding nonbank financial companies, including the statutory considerations and procedures for information collection and hearings. The final rule adopts, in large part, the framework established in the proposed rulemaking in October 2011. Additionally, the final rule includes, in an appendix, certain interpretive guidance for the determination of systemic importance. This includes:

  • Key terms and concepts related to the Council’s determination authority, including definitions of “material financial distress” and “threat to financial stability”;
  • The uniform quantitative thresholds that the Council intends to use to identify nonbank financial companies for further evaluation;
  • The six-category framework that the Council intends to use to consider whether a nonbank financial company meets either of the statutory standards for a determination, including examples of quantitative metrics for assessing each category; and
  • The process that the Council intends to follow when considering whether to subject a nonbank financial company to supervision by the Board of Governors and prudential standards. [3]

Treasury Secretary Tim Geithner said that the council will begin using the criteria to determine exactly which non-bank financial institutions will meet the threshold for "systemic importance" and be subject to enhanced oversight and rules. [4] The council will use a "three-stage" process in the determination:

  • Stage 1: asset, derivative liability, debt, and leverage thresholds as described in the proposed rule;
  • Stage 2: comprehensive study of each Stage 1 firm, taken from publicly available information; and
  • Stage 3: requests for more information from each Stage 2 firm.

According to page 53 of the document, “Based on data currently available to the Council through existing public and regulatory sources, the Council has estimated that fewer than 50 nonbank financial companies meet the Stage 1 thresholds.” Market participants have taken this to mean that the FSOC has already begun the Stage 2 process and has already identified some of the firms that may meet the threshold. [5]

The first round of evaluations is expected to be completed by late 2012.

Freedom of Information Act

Also approved at the meeting was the adoption of policies related to Freedom of Information Act (FOIA) requests. This is more of a "technical" rulemaking, required by FOIA, that sets forth procedures for requesting access to, and making disclosures of, information contained in Council records.

Related Documents: Final Rules on Nonbank Financial Companies; FOIA Implementation; Meeting Minutes

References

  1. Financial Stability Oversight Council Approves Rule To Designate Nonbank Financial Companies For Enhanced Oversight, Help Prevent Future Financial Crises. U.S. Department of the Treasury. Retrieved on April 4, 2012.
  2. U.S. risk council identifies initial set of clearinghouses. Reuters. Retrieved on May 23, 2012.
  3. Authority to Require Supervision and Regulation of Certain Nonbank Financial Companies. U.S. Department of the Treasury. Retrieved on April 4, 2012.
  4. Regulators Move Closer to Oversight of Nonbanks. New York Times. Retrieved on April 4, 2012.
  5. Do Regulators Know Who the SIFIs Are?. Wall Street Journal Real Time Economics. Retrieved on April 12, 2012.

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