FSOC Promises Details on Nonbank Systemically-Important Criteria

NU Online News Service, Aug. 11, 1:55 p.m. EDT

The Treasury Department confirmed late Wednesday that the Financial Stability Oversight Council plans to re-propose—with "greater detail on the process and framework"—the principles it will use in designating nonbank financial companies as systemically significant.

The FSOC's plans were reiterated in a letter sent to Rep. Randy Neugebauer, R-Texas, chairman of the Oversight Subcommittee of the House Financial Services Committee.

The new document justifies for the first time the use of qualitative considerations—as well as the 10 quantitative criteria spelled out in the Dodd-Frank financial services law—that the FSOC will use to designate certain nonbanks as systemically significant.

"Because the statutory considerations, individually as well as in combination, cannot be reduced to a simple formula, the guidance will set forth both quantitative metrics the FSOC expects to use, in addition to the qualitative considerations that, in the FSOC's judgment, will allow it to evaluate the threat that particular companies pose to financial stability," the letter says.

The letter doesn't specify exactly when the proposed regulation and guidance will be published for comment, but it does call for a 60-day comment period, and notes that the guidance will be released at the same time.

Moreover, the letter says, the rule will not be finalized until the FSOC has "reviewed and considered" all comments.

Insurers want the FSOC to be as specific as possible in a regulation so that they can challenge such a designation in court if they desire, according to several industry lawyers and lobbyists.

The FSOC letter follows similar comments on the issue made by Neil Wolin, deputy Treasury secretary, before the Senate Banking Committee July 21.

The letter was signed by Amias Gerety, deputy assistant secretary in the Treasury Department's Office of the FSOC.

Gerety says in the letter that the proposed rule will specify the procedures "pursuant to which nonbank financial companies will be considered for designation."

He adds that the accompanying guidance "will provide the public with additional clarity regarding the FSOC proposed approach to evaluating nonbank financial companies for designation."

"This will help enable nonbank financial companies to assess whether they are likely to be considered for designation," the letter says.

The guidance will also describe the FSOC's view of the primary factors relevant to a designation "which may be adjusted over time respond to emerging threats as financial markets and companies evolve," according to the letter.