Federal Reserve proposes rules for designating ‘systemically important’ companies that would face tougher supervision

This article was originally on a blog post platform and may be missing photos, graphics or links. See About archive blog posts.

The Federal Reserve on Tuesday released its proposals for determining which companies will be designated as ‘systemically important’ and face tougher supervision under the financial regulatory overhaul enacted last year.

The new rules, which are open for public comment, are key to enacting a major part of the overhaul designed to provide greater oversight of banks and other financial firms whose failure could endanger the financial system. The Fed is designing the rules for the Financial Stability Oversight Council, a new panel of top regulators set up by the Wall Street reform law to monitor the financial system for major threats.

Under the proposal, banks and non-bank financial firms would be considered ‘significant’ and subject to greater oversight if they have more than $50 billion in total consolidated assets. The council also could designate firms below that threshold as ‘systemically important.’

There are about 35 bank holding companies with more than $50 billion in total assets, according to the Fed’s latest rankings, led by Bank of America with $2.34 trillion as of Sept. 30.

Financial firms that aren’t bank holding companies would be subject to the heightened oversight if they were ‘predominantly engaged in financial activities.’ The Fed proposes to define that as having at least 85% of revenues or assets related to a host of financial activities already set into law.

Those activities include: making, acquiring, brokering, or servicing loans or other extensions of credit; organizing, sponsoring, and managing a mutual fund; or acting as a principal or agent in the sale of insurance or annuities.

The Fed will be taking public comments on the proposals until March 30.

-- Jim Puzzanghera