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FSOC Approves Volcker Rule and Concentration Limit Studies, Issues Proposed Rule on Designations of Nonbank Financial Firms for Heightened Supervision
WASHINGTON – The Financial Stability Oversight Council (FSOC) convened its third meeting today at the U.S. Department of the Treasury and approved each of the documents and resolutions put forward during today’s session. These include: a study and recommendations regarding the Volcker Rule; a study and recommendations regarding the concentration limit for large financial firms; a Notice of Proposed Rulemaking (NPR) regarding designations of nonbank financial companies for heightened supervision; and the minutes of the FSOC’s previous meeting, held on November 23, 2010.
The FSOC’s Study and Recommendations Regarding Implementation of the Volcker Rule
As mandated by the Dodd-Frank Act, the FSOC conducted a study on how best to implement Section 619 of the Act (commonly known as the “Volcker Rule”), which is designed to improve the safety of our nation’s banking system by prohibiting proprietary trading activities and certain private fund investments. The FSOC’s study puts forward recommendations designed to effectively and comprehensively implement the Volcker Rule in a manner that constrains risk-taking by, and promotes the safety and soundness of, banking entities. The study, as passed by the FSOC, is available at www.treasury.gov/FSOC.
The FSOC’s Report on the Concentration Limit on Large Financial Companies
Section 622 of the Dodd-Frank Act establishes a financial sector concentration limit that would prohibit a financial company from merging or consolidating with, or acquiring, another company if the resulting company’s consolidated liabilities would exceed 10 percent of the aggregate consolidated liabilities of all financial companies. This concentration limit is intended, along with a number of other provisions in the Dodd-Frank Act, to promote financial stability and address the perception that large financial institutions are “too big to fail.”
As required by the Dodd-Frank Act, the FSOC completed a study of the extent to which the concentration limit would affect: financial stability, moral hazard in the financial system, the efficiency and competitiveness of U.S. financial firms and financial markets, and the cost and availability of credit and other financial services to households and businesses in the United States. The study also contains the FSOC’s recommendations regarding modifications to the concentration limit to mitigate practical difficulties likely to arise in its administration and enforcement, without undermining its effectiveness in limiting excessive concentration among financial companies. These recommendations will be issued for public comment. The study, as passed by the FSOC, is available at www.treasury.gov/FSOC.
NPR Regarding Authority to Require Supervision and Regulation of Certain Nonbank Financial Companies
The Dodd-Frank Act mandated that the FSOC ensure that all financial companies whose failure could pose a threat to the financial stability of the United States – not just banks – will be subject to strong oversight. Using the considerations set forth in the Dodd-Frank Act, as well as taking into account public comments on a previously issued Advance Notice of Proposed Rulemaking, the FSOC today approved a proposed rule outlining the criteria that will inform the FSOC’s designation of such firms and the procedures the FSOC will use in the designation process. Under the FSOC’s proposed rule, if designated, the largest, most interconnected and highly-leveraged companies would face stricter prudential regulation, including higher capital requirements and more robust consolidated supervision. The NPR will have a 30-day public comment period, with FSOC action on the final designation criteria and process expected later this year. The NPR, as passed by the FSOC, will be posted at www.treasury.gov/FSOC.
Minutes from the Council’s November 23, 2010 Meeting
In attendance at the FSOC meeting were:
- Tim Geithner, Treasury Secretary (Chairperson of the FSOC);
- Sheila Bair, Chairman of the Federal Deposit Insurance Corporation;
- Ben Bernanke, Chairman of the Board of Governors of the Federal Reserve System;
- Edward DeMarco, Acting Director of the Federal Housing Finance Agency;
- Gary Gensler, Chairman of the Commodity Futures Trading Commission;
- Debbie Matz, Chairman of the National Credit Union Administration;
- Mary Schapiro, Chairman of the U.S. Securities and Exchange Commission;
- John Walsh, Acting Comptroller of the Currency;
- William Haraf, Commissioner, California Department of Financial Institutions (non-voting member);
- John Huff, Director, Missouri Department of Insurance, Financial Institutions, and Professional Registration (non-voting member); and
- David Massey, Deputy Securities Administrator, North Carolina Department of the Secretary of State, Securities Division (non-voting member).
For more information about each member agency’s financial reform implementation efforts, please follow the links below.
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