The Deputies Committee of the Financial Stability Oversight Council (“FSOC”) held a series of meetings on November 12, 2014 regarding FSOC’s non-bank financial company designations process.
The meetings followed FSOC’s directive to staff at its October 6 public meeting, and are part of its ongoing effort to seek input from relevant stakeholders regarding potential changes to the process. Discussions focused on proposals presented to FSOC’s staff in three broad categories:
- “engagement with companies under review during Stages 2 and 3 of the process;
- “the annual reevaluations of previously designated companies; and
- “the balance between informing the public of the Council’s work and protecting confidential, market-sensitive information relating to individual companies under consideration.”
FSOC’s set of frequently asked questions regarding its non-bank financial company designations process was updated and is available here.
Lofchie Comment: Regardless of how many Qs are included in the FAQ, the process of designation is ultimately discretionary. This is not the optimal way for the government to administer financial markets (or, indeed, any activity). Here is the key Q. and A. from the linked FAQ:
“[Question:] What standards or metrics does the FSOC use to determine if a company should be designated?
“[Answer:] The Dodd-Frank Act establishes the standards for whether the FSOC may designate a nonbank financial company, and also includes a list of factors that the FSOC must consider in its designations. Under the statute, the FSOC may designate a nonbank financial company only if the FSOC determines that the firm’s material financial distress, or the nature, scope, size, scale, concentration, interconnectedness, or mix of the activities of the company, could pose a threat to U.S. financial stability. Factors the FSOC must consider include, among others, leverage, size, interconnectedness, and existing regulatory scrutiny.”