By Dave Clarke
WASHINGTON, Feb 8 (Reuters) - U.S. regulators may use a two-year test of a nonbank financial firm's revenue and assets to help determine if it is "systemic" and needs stricter supervision, the Federal Reserve said in a proposal released on Tuesday.
The Federal Reserve said it is seeking comment on how regulators should define which nonbank financial firms such as insurers and hedge funds are so big and interconnected that they could impact the stability of financial markets.
Bank holding companies with assets of $50 billion or more are automatically subject to this supervision.
The Dodd-Frank law gives the government the authority to seize a large, failing financial institution so that it can be liquidated without causing too much chaos in the financial markets, such as what occurred when Lehman Brothers went bankrupt in September 2008.
Under this system the new Financial Stability Oversight Council is supposed to designate financial firms other than banks that are "predominantly engaged in financial activities" and could pose a threat to financial markets.
On Tuesday the Fed proposed that a company is "predominantly engaged in financial activities" if in either of the two most recently completed fiscal years, a company's gross financial revenues represent 85 percent or more of its annual gross revenues.
A firm would also meet this test if a company's total financial assets represent 85 percent or more of its total assets.
The rule will help regulators determine the universe of nonbank companies that may be tagged as systemically important, a designation that comes with increased scrutiny from regulators such as direct supervision by the Federal Reserve.
Hedge funds and insurance companies are among the nonbank companies hoping to avoid being tagged by FSOC as being important enough that their failure could roil financial markets.
Source: http://www.reuters.com
No comments:
Post a Comment