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.