U.S. Regulators Propose Threshold for Defining Systemic Risk Firms

October 12, 2011

U.S. regulators pondering which non-bank financial firms are large enough to warrant additional oversight have proposed a $50 billion asset threshold in conjunction with levels of debt and derivatives.

The Financial Stability Oversight Council on Tuesday agreed to issue for public comment its proposed criteria that includes whether a firm has $3.5 billion in derivative liabilities and whether it has $20 billion in outstanding loans borrowed and bonds issued.

Bank holding companies with more than $50 billion in assets, such as Goldman Sachs and JPMorgan Chase , are automatically subject to the added scrutiny.

FSOC, the panel of U.S. financial regulators created by last year’s Dodd-Frank financial oversight law, said it will apply the non-bank thresholds as the first part of a three-stage test.

Insurers, hedge funds, mutual funds and other big non-bank financial firms have been nervous that they will be deemed systemically important financial institutions, or SIFIs.

SIFIs are to be subject to greater oversight by the Federal Reserve and strict capital and liquidity requirements.

Beyond the quantitative thresholds, regulators will also review a non-bank firm’s potential impact on the health of financial markets, and will collect data from the firm itself, FSOC staff said at a public meeting on Tuesday.

FSOC will allow 60 days for public comments.

“I think the new metrics and the thresholds in particular will give very important information to the public so they can better understand the FSOC process to go forward,” said Securities and Exchange Commission Chairman Mary Schapiro, a member of FSOC.

(Reporting by Dave Clarke; Editing by Tim Dobbyn)

Was this article valuable?

Here are more articles you may enjoy.