FSOC Poised to Begin Nonbank SIFI Designations Following Release of Final Rule

April 5, 2012

The Financial Stability Oversight Council issued a final rule and interpretive guidance this week outlining the process and considerations for designating systemically important nonbank financial companies. As expected, the release made only minor clarifying changes to a proposal released last October, and the FSOC has sought to retain very broad discretion with respect to both the substantive analysis and the designation process. The final rule and guidance lay out a procedural framework and certain factors that the FSOC will consider in making designations, but the quantitative thresholds and examples of metrics that will be used are expected to evolve further and are effectively non-binding. As a result, until the Council begins requesting information from firms and makes some initial designations, it will be difficult to predict implications for individual institutions. The FSOC is expected to begin evaluating companies immediately.

The FSOC also released this week its final rule regarding public access to Council documents under the Freedom of Information Act, and the Federal Reserve Board issued a reproposal of a definition in Regulation Y regarding companies that are deemed to be “predominantly engaged in financial activities”, and thus potentially subject to designation as Nonbank SIFIs

The attached memorandum identifies key observations related to these releases and provides an outline of the final FSOC designation framework.