The US Financial Stability Oversight Council (FSOC) recently issued a
final rule and guidance regarding non-bank entities that may be
designated as systemically important subject to Federal Reserve
supervision.
The rule establishes a multi-step process. A company with at least
$50 billion in total consolidated assets may be a systemically important
financial institution (Sifi) if it meets one of five thresholds: $30
billion in outstanding credit default swaps, $3.5 billion in derivative
liabilities, $20 billion in outstanding loans borrowed and bonds issued,
a 15-to-1 leverage ratio measured as assets to equity, or a 10% ratio
of short-term debt to total assets. Following a review of these
criteria, the FSOC will undertake an examination of the company based on
publicly available materials and regulatory filings, and alert the
company regarding the FSOC's intention to evaluate whether it is a Sifi.
At this point, the company can address FSOC concerns. Finally,
two-thirds of the FSOC would vote to designate the company a Sifi.
All in all, this is consistent with prior guidance, though it
provides additional detail. Non-bank entities might include savings and
loan holding companies, insurance companies, private equity firms, hedge
funds, asset management companies, financial guarantors, and other US
and non-US non-bank companies deemed to be predominantly engaged in
activities that are financial in nature. The interpretation of
activities that are predominantly financial in nature also is under
review.
While this additional guidance on Sifi-dom provides a bit more
information regarding the likely suspects for non-bank Sifi designation,
the first actual designations are not anticipated to be known until
later this year. The mystery continues.