NU Online News Service, April 4, 3:29 a.m.EST

The Financial Stability Oversight Council's final ruledetermining whether an insurer is "systemically significant" castsa wider net than expected regarding who will get a closer look, andtakes an "expansive view" of defining a company's debt, analystssay.

The final regulation establishes a three-step screening processfor determining whether a non-bank such as an insurer should besubject to regulation by the Federal Reserve Board as well as stateregulators because, under the criteria established under theDodd-Frank Act, it represents a potential risk to the stability ofthe U.S.financial system.

Jeff Schuman, a Keefe, Bruyette & Woods life-insuranceanalyst, says the final rule "casts a wider net than we expected,but only for the purpose of who is going to get a closer look."

Brian Gardner, also a KBW analyst, says the rule willallow the second and third steps of the FSOC's screening process toprovide for a "narrowing from a broad universe, which will createsomething more manageable for the FSOC to consider."

Ultimately, Gardner says, "it will be a judgment call as towhether a non-bank poses a material risk to the U.S.financialsystem."

He cautions that this is "going to be a very long process,"adding that a lot of the uncertainty is by design.

"The SIFI designation will ultimately not be reduced to simplerules and calculations," Gardner explains.

But he adds that the rule "does provide a little clarity as tohow process will work."

He also calls the process "a fluid exercise, not static,"noting, "Companies first designated could later be undesignated;this will be a dynamic process."

Schuman says the first thing he noticed about the final rule isthat the first stage of the screening process proposed last fallhas been maintained, although the final rule provides more detailas to how the FSOC will apply the screens.

He says the final rule also clarifies some details about themetrics that will be used, for example, including calculation ofderivative liabilities.

Schuman also says the final rule indicates FSOC examiners will"take an expansive view of defining a company's debt."

KBW analysts, he notes, "assumed a simpler definition."Specifically, he says that in addition to calculatingholding-company debt, the FSOC will account for some operating debtas it relates to potential systemic risk.

For a description of the FSOC's final rule, see here.