Financial Stability Oversight Council Seeks Comments
The Financial Stability Oversight Council is seeking comments on an advance notice of proposed rulemaking. Comments must be received by November 5, 2010, and should be submitted using the federal eRulemaking portal.
The Dodd-Frank Wall Street Reform and Consumer Protection Act gives the Financial Stability Oversight Council the authority to require that a nonbank financial company be supervised by the Board of Governors of the Federal Reserve System if the council determines that material financial distress at the company or the activities of the company could pose a threat to the financial security of the United States.
The Financial Stability Oversight Council has ten voting members and five nonvoting members. The voting members are the Secretary of the Treasury, the Chairman of the Board of Governors of the Federal Reserve System, the Comptroller of the Currency, the Director of the Bureau of Consumer Financial Protection, the Chairman of the Securities and Exchange Commission, the Chairperson of the Federal Deposit Insurance Corporation, the Chairperson of the Commodity Futures Trading Commission, the Director of the Federal Housing Finance Agency, the Chairman of the National Credit Union Administration Board, and an independent member with insurance expertise appointed by the President with the advice and consent of the Senate.
The nonvoting members include the Director of the Office of Financial Research, the Director of the Federal Insurance Office, a state insurance commissioner, a state banking supervisor, and a state securities commissioner.
Under the Dodd-Frank Act, the Financial Stability Oversight Council must consider a series of factors in making determinations whether companies should be subject to supervision by the Board of Governors. Although not listed in their entirety here, some of the factors include the extent of leverage of a company, the extent and nature of the company’s off-balance sheet exposures, the importance of the company as a source of credit for households and businesses, the importance of the company as a source of credit for low-income, minority or underserved communities, the extent to which assets are managed rather than owned by the company, and the degree to which the company already is subject to regulation by one or more primary financial regulatory agencies.
The Dodd-Frank Act provides for the council to provide a financial firm with advance notice that it intends to designate the firm. The firm then has 30 days in which to request a hearing and an additional 30 days in which to submit information. The council then will render a decision within 60 days of the hearing. In making a determination, th council will consult with the company’s primary financial regulator.
The council currently is seeking comments on the criteria it should use in determining whether a determination should be made under Section 113 of the Dodd-Frank Act. To guide interested parties’ comments, the council has proposed a long list of topics to which companies might respond. Among these, the council asks how quantitative and qualitative considerations should be incorporated into the decision process. The council also inquires whether certain factors should weigh more heavily than others in the determinations. The council seeks guidance as to whether simple metrics can be used to determine whether nonbank financial companies should even be considered for designation.
Regarding off-balance sheet exposures, the council asks what should be considered an “off-balance sheet exposure” for purposes of the Act, and how should those exposures be assessed. With respect to consumer credit, the council seeks input as to whether there are measures of market concentration that can be used to determine whether the company is a significant provider of credit.
The council also requests input relating to the role of companies’ primary regulators. The council would like interested parties to address how the existence of a primary financial regulator should play into the decision whether to designate a company. In particular, the council seeks advice as to whether certain aspects of existing regulation are important factors, such as the existence of capital regulation, liquidity requirements, and consolidated supervision.
The standards and guidelines used by the Financial Stability Oversight Council in determining whether to designate particular companies for supervision by the Board of Governors obviously will have a significant effect when applied. Interested companies are encouraged to review the councils topics of interest and submit written comments.