Action Names Eight Financial Market Utilities as Systemically Important, Subjects Firms to Heightened Risk Management Standards
Council Submits Second Annual Report to Congress
WASHINGTON – The Financial Stability Oversight Council (the Council) today voted unanimously to designate eight financial market utilities (FMUs) as systemically important under Title VIII of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act). This action, the first designations made by the Council, represents another key step towards creating a safer, more resilient financial system. The authority to designate FMUs—often referred to as the “plumbing of the financial system” for their role in clearing and settling transactions between financial institutions—is an important component of Wall Street Reform and is one of a number of tools now available to constrain risk and help protect against future financial crises.
The designated FMUs are:
•The Clearing House Payments Company, L.L.C., on the basis of its role as operator of the Clearing House Interbank Payments System
•CLS Bank International
•Chicago Mercantile Exchange, Inc.
•The Depository Trust Company
•Fixed Income Clearing Corporation
•ICE Clear Credit LLC
•National Securities Clearing Corporation
•The Options Clearing Corporation
The Dodd-Frank Act provides four specific factors the Council must consider when determining whether an FMU is, or is likely to become, systemically important. The Council’s regulations regarding the designation of FMUs, which can be found at www.fsoc.gov, provide more detail regarding these factors and their role in the Council’s analysis of whether to designate an FMU. The four factors are (1) the aggregate monetary value of transactions processed by the FMU; (2) the aggregate exposure of the FMU to its counterparties; (3) the relationship, interdependencies, or other interactions of the FMU with other FMUs or payment, clearing, or settlement activities; and (4) the effect that the failure of or a disruption to the FMU would have on critical markets, financial institutions, or the broader financial system.
The vote follows a process laid out in the Council’s regulations. Each FMU received a letter on May 22, 2012, informing it that the Council had proposed its designation and providing it with the rationale for the Council’s determination. The FMUs each had 30 days to request a hearing if they disagreed with the proposed determination of the Council or the Council’s proposed findings of fact, but no FMU requested such a hearing. The Council also continues to make progress on its first designations of nonbank financial companies for supervision by the Board of Governors of the Federal Reserve System and enhanced prudential standards.
Also at its meeting today, the Council approved its 2012 Annual Report, which was developed collaboratively by the members of the Council and their agencies and staff. Under the Dodd-Frank Act, the Council must report annually to Congress on a range of issues, including the activities of the Council, significant financial market and regulatory developments, potential emerging threats to the financial stability of the United States, and all determinations made under Section 113 or Title VIII of the Dodd-Frank Act. The report must also make recommendations for promoting market discipline, maintaining investor confidence, and enhancing the integrity, efficiency, competitiveness, and stability of U.S. financial markets. In addition, the report describes progress on the implementation of the Dodd-Frank Act.
In addition, the Council released the minutes from its June 11, 2012, meeting, and approved its report on the study of a contingent capital requirement for nonbank financial companies supervised by the Board of Governors of the Federal Reserve System and for large, interconnected bank holding companies.
All of these documents are available at www.fsoc.gov.
Present at the Council meeting were:
•Tim Geithner, Treasury Secretary (Chairperson of the Council);
•Ben S. Bernanke, Chairman of the Board of Governors of the Federal Reserve System;
•Richard Cordray, Director of the Consumer Financial Protection Bureau;
•Edward DeMarco, Acting Director of the Federal Housing Finance Agency;
•Gary Gensler, Chairman of the Commodity Futures Trading Commission;
•Martin Gruenberg, Acting Chairman of the Federal Deposit Insurance Corporation;
•Debbie Matz, Chairman of the National Credit Union Administration;
•Mary Schapiro, Chairman of the U.S. Securities and Exchange Commission;
•Thomas Curry, Comptroller of the Currency;
•S. Roy Woodall, Jr., Independent Member with Insurance Expertise;
•John P. Ducrest, Commissioner, Louisiana Office of Financial Institutions (non-voting member);
•John Huff, Director, Missouri Department of Insurance, Financial Institutions, and Professional Registration (non-voting member);
•David Massey, Deputy Securities Administrator, North Carolina Department of the Secretary of State, Securities Division (non-voting member); and
•Michael McRaith, Director of the Federal Insurance Office (non-voting member)
For more information about each member agency's financial reform implementation efforts, please follow the links below.