The Board of Governors of the Federal Reserve System (“FRB”) requested public comment on the application of enhanced prudential standards and reporting requirements to General Electric Capital Corporation (“GECC”), a non-bank financial company that the Financial Stability Oversight Council (“FSOC”) has determined should be supervised by the FRB.
The proposed enhanced prudential standards are similar to those that are applied to large bank holding companies, and include requirements regarding risk-based and leverage capital, capital planning, stress testing, liquidity, and risk management. Under the proposal, GECC would be subject to the enhanced supplementary leverage ratio, which is applicable to the largest U.S. banking organizations, and would be required to file reports with the FRB that are comparable to those which large bank holding companies are required to file.
However, the proposal also would apply certain additional standards to GECC, including additional independence requirements for GECC’s board of directors and restrictions on intercompany transactions between GECC and General Electric Corporation.
Comments on the proposal will be due 60 days after its publication in the Federal Register.
Lofchie Comment: We have commented numerous times that FSOC’s power to designate entities as systemically significant grants too much discretion to FSOC. The designation of GECC as systemically significant offers a good example of the fact that a similar result (giving the FRB more authority over large bank-like institutions) could have been achieved with a statute that was more formulaic. In the case of GECC, the FRB could have been given power over savings and loan holding companies of a certain size, just as it is given authority over bank holding companies. Similarly, if FSOC believes that the FRB should have authority over insurance companies of a certain size, then FSOC should propose an amendment to the law to that end instead of being given permission to exercise discretion as to which companies the FRB should regulate.