80110 Federal Register / Vol. 88, No. 221 / Friday, November 17, 2023 / Rules and Regulations 

1 Dodd-Frank Act section 111, 12 U.S.C. 5321. 

2 Dodd-Frank Act section 112(a)(1), 12 U.S.C. 

5322(a)(1). 

3 ‘‘Primary financial regulatory agency’’ is defined 

in section 2(12) of the Dodd-Frank Act, 12 U.S.C. 

5301(12). Primary financial regulatory agencies and 

home country supervisors are referred to 

collectively as ‘‘primary financial regulators’’ in this 

preamble. 

4Section 113 of the Dodd-Frank Act, 12 U.S.C. 

5323, refers to a Council ‘‘determination’’ regarding 

a nonbank financial company. This preamble and 

the following interpretive guidance refer to 

‘‘determination’’ and ‘‘designation’’ interchangeably 

for ease of reading. 

5For ease of reading, this preamble often refers 

to the first and second determination standards 

together as whether a company’s ‘‘material financial 

distress or activities’’ could pose a threat to 

financial stability. 

6Financial Stability Oversight Council, 

Supplemental Procedures Relating to Nonbank 

Financial Company Determinations (Feb. 4, 2015), 

available at https://home.treasury.gov/system/files/ 

261/Supplemental%20Procedures%20Related%

20to%20Nonbank%20Financial%20Company%20

Determinations%20%20%28February%204

%2C%202015%29.pdf. In addition, in June 2015, 

the Council published staff guidance with details 

regarding certain methodologies used in connection 

with the determination process under section 113. 

See Financial Stability Oversight Council, Staff 

Guidance Methodologies Relating to Stage 1 

Thresholds (June 8, 2015), available at https://

home.treasury.gov/system/files/261/Staff 

%20Guidance%20Methodologies%20

Relating%20to%20Stage%201%20Thresholds.pdf. 

7 84 FR 8,958 (March 13, 2019). 

8 84 FR 71,740 (Dec. 30, 2019). 

9Minutes of the Council (Dec. 4, 2019), available 

at https://home.treasury.gov/system/files/261/ 

December-4-2019.pdf. In addition, on May 22, 2012, 

the Council approved hearing procedures relating to 

the conduct of hearings before the Council in 

connection with proposed determinations regarding 

nonbank financial companies and financial market 

utilities and related emergency waivers or 

modifications under sections 113 and 804 of the 

Dodd-Frank Act, 12 U.S.C. 5323 and 5463; see 77 

FR 31,855 (May 30, 2012). The hearing procedures 

were amended in 2013 (78 FR 22,546 (April 16, 

2013)) and 2018 (83 FR 12,010 (March 19, 2018)). 

The following interpretive guidance does not 

amend the Council’s hearing procedures. 

10 88 FR 26,234 (April 28, 2023). 

11 88 FR 41,510 (June 27, 2023). 

FINANCIAL STABILITY OVERSIGHT 

COUNCIL 

12 CFR Part 1310 

Guidance on Nonbank Financial 

Company Determinations 

AGENCY: Financial Stability Oversight 

Council. 

ACTION: Final interpretive guidance. 

SUMMARY: This final interpretive 

guidance describes the process the 

Financial Stability Oversight Council 

intends to undertake in determining 

whether to subject a nonbank financial 

company to prudential standards and 

supervision by the Board of Governors 

of the Federal Reserve System under 

section 113 of the Dodd-Frank Wall 

Street Reform and Consumer Protection 

Act. 

DATES: Effective January 16, 2024 

FOR FURTHER INFORMATION CONTACT: Eric 

Froman, Office of the General Counsel, 

Treasury, at (202) 622–1942; Devin 

Mauney, Office of the General Counsel, 

Treasury, at (202) 622–2537; or Priya 

Agarwal, Office of the General Counsel, 

Treasury, at (202) 622–3773. 

SUPPLEMENTARY INFORMATION: 

I. Background 

Section 111 of the Dodd-Frank Wall 

Street Reform and Consumer Protection 

Act (the Dodd-Frank Act) established 

the Financial Stability Oversight 

Council (the Council).1 The statutory 

purposes of the Council are ‘‘(A) to 

identify risks to the financial stability of 

the United States that could arise from 

the material financial distress or failure, 

or ongoing activities, of large, 

interconnected bank holding companies 

or nonbank financial companies, or that 

could arise outside the financial 

services marketplace; (B) to promote 

market discipline, by eliminating 

expectations on the part of shareholders, 

creditors, and counterparties of such 

companies that the Government will 

shield them from losses in the event of 

failure; and (C) to respond to emerging 

threats to the stability of the United 

States financial system.’’ 2

The Council’s duties under section 

112 of the Dodd-Frank Act reflect the 

range of approaches the Council may 

consider to respond to potential threats 

to U.S. financial stability, which include 

collecting information from regulators, 

requesting data and analyses from the 

Office of Financial Research (OFR), 

monitoring the financial services 

marketplace and financial regulatory 

developments, facilitating information 

sharing and coordination among 

regulators, recommending to the 

Council member agencies general 

supervisory priorities and principles, 

identifying regulatory gaps, making 

recommendations to the Board of 

Governors of the Federal Reserve 

System (Federal Reserve) or other 

primary financial regulatory agencies,3

and designating certain entities or 

payment, clearing, and settlement 

activities for additional regulation. 

Section 113 of the Dodd-Frank Act 

authorizes the Council to determine that 

a nonbank financial company will be 

subject to supervision by the Federal 

Reserve and prudential standards and 

lists the considerations that the Council 

must take into account in making such 

a determination. Designation 4 is 

authorized if the Council determines 

that either (1) material financial distress 

at the nonbank financial company could 

pose a threat to U.S. financial stability 

(referred to as the ‘‘first determination 

standard’’), or (2) the nature, scope, size, 

scale, concentration, 

interconnectedness, or mix of the 

activities of the nonbank financial 

company could pose a threat to U.S. 

financial stability (the ‘‘second 

determination standard’’).5 Under 

section 165 of the Dodd-Frank Act, the 

Federal Reserve is responsible for 

establishing the prudential standards 

that will be applicable to a nonbank 

financial company subject to a Council 

designation under section 113 of the 

Dodd-Frank Act. 

The Council has previously issued 

rules, guidance, and other public 

statements regarding its process for 

evaluating nonbank financial companies 

for potential designation. On April 11, 

2012, the Council issued a final rule at 

12 CFR 1310.1 through 23 (the 2012 

Rule) setting forth certain procedures 

related to designations under section 

113 of the Dodd-Frank Act. Attached to 

the 2012 Rule as Appendix A was 

interpretive guidance (the 2012 

Interpretive Guidance) setting forth 

additional information regarding the 

manner in which the Council made 

determinations under section 113 

(together with the 2012 Rule, the 2012 

Rule and Guidance). On February 4, 

2015, the Council adopted supplemental 

procedures (the 2015 Supplemental 

Procedures) to the 2012 Rule and 

Guidance.6 On March 13, 2019, the 

Council amended the 2012 Rule by 

adding a new provision at 12 CFR 

1310.3.7 On December 30, 2019, the 

Council replaced the 2012 Interpretive 

Guidance with revised interpretive 

guidance (the 2019 Interpretive 

Guidance).8 In connection with the 

adoption of the 2019 Interpretive 

Guidance, the Council rescinded the 

2015 Supplemental Procedures.9

On April 21, 2023, the Council 

approved proposed interpretive 

guidance (the Proposed Guidance) to 

revise and update the 2019 Interpretive 

Guidance.10 The comment period was 

initially set to close after 60 days; 

however, in response to public requests 

for additional time to review and 

comment on the Proposed Guidance, the 

Council extended the comment period 

by 30 days.11 The comment period 

closed on July 27, 2023. 

The Council received 47 comment 

letters in response to the Proposed 

Guidance, of which 13 were from 

various advocacy groups, 11 were from 

companies or trade associations in the 

investment management industry, six 

were from trade associations in the 


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12The comment letters are available at https://

www.regulations.gov/docket/FSOC-2023-0002/ 

comments. 

13 88 FR 26,305 (April 28, 2023). 

14See Dodd-Frank Act sections 112(a)(1)(C), 

(a)(2)(C), and (a)(2)(H), 12 U.S.C. 5322(a)(1)(C), 

(a)(2)(C), and (a)(2)(H). 

15See 84 FR at 71,763 (Dec. 30, 2019). The 

definition of this term in the 2019 Interpretive 

Guidance imposed a higher threshold than the 

Council’s previous interpretation of this term under 

the 2012 Interpretive Guidance. 

16 Dodd-Frank Act section 112(a)(1)(C), 12 U.S.C. 

5322(a)(1)(C). 

insurance industry, seven were from 

other companies or trade associations, 

five were from current or former state or 

federal government officials, two were 

from groups of academics, and three 

were from other individuals.12

Having carefully considered the 

comments it received, at a public 

meeting on November 3, 2023, the 

Council adopted the final interpretive 

guidance below (the Final Guidance), 

which replaces in its entirety the 2019 

Interpretive Guidance, found at 

Appendix A to 12 CFR part 1310. The 

Council’s rules at 12 CFR 1310.1 

through 23 remain in effect. 

Also on November 3, 2023, the 

Council adopted a separate document 

explaining the Council’s substantive 

approach to identifying, assessing, and 

responding to certain potential risks to 

U.S. financial stability (the Analytic 

Framework). The Analytic Framework 

describes the Council’s analytic 

approach without regard to the origin of 

a particular risk, including whether the 

risk arises from widely conducted 

activities or from individual entities, 

and regardless of which of the Council’s 

authorities may be used to address the 

risk. The Council approved a proposed 

version of the Analytic Framework (the 

Proposed Analytic Framework) on April 

21, 2023.13 The public comment period 

for the Proposed Analytic Framework 

ran concurrently with the comment 

period for the Proposed Guidance, 

including the 30-day extension, and 

most of the comment letters noted above 

also addressed the Proposed Analytic 

Framework. 

II. Overview of the Final Guidance 

A. Overview 

With the Final Guidance, the Council 

aims to establish a durable process for 

the Council’s use of its nonbank 

financial company designation 

authority, maintain rigorous procedural 

protections for nonbank financial 

companies reviewed for potential 

designation, and remove unwarranted 

hurdles to designation imposed by the 

2019 Interpretive Guidance. Congress 

created the designation authority based 

on lessons learned from the financial 

crisis in 2007–09, when financial 

distress at large, complex, highly 

interconnected, highly leveraged, and 

inadequately regulated nonbank 

financial companies devastated the 

financial system. While the financial 

system, market participants, and risks 

can rapidly evolve, it remains the 

Council’s statutory responsibility not 

only to monitor the financial services 

marketplace but to take action to 

respond to emerging threats to U.S. 

financial stability.14

Under the Final Guidance, the 

Council’s designation process is built on 

transparency and engagement with a 

company under review and its existing 

primary financial regulator (if any) 

during the designation process. Through 

this process, any Council designation of 

a nonbank financial company will be 

based on data-driven analysis that 

reflects the distinctive aspects of the 

company, its market, and its existing 

regulation. Further, the approach 

adopted in the Final Guidance does not 

make designation the Council’s default 

method of addressing risks to financial 

stability—and the Final Guidance does 

not eliminate the Council’s use of an 

activities-based approach to address 

risks to financial stability when the 

Council finds it to be appropriate. 

Instead, the Final Guidance puts the 

Council’s designation authority on equal 

footing with its other powers. The 

Council expects to continue addressing 

most risks through its collaboration with 

primary financial regulators. 

B. Key Changes From the 2019 

Interpretive Guidance 

The Final Guidance removes three 

significant but inappropriate 

prerequisites to the exercise of the 

Council’s nonbank financial company 

designation authority that were created 

by the 2019 Interpretive Guidance. In 

particular, the 2019 Interpretive 

Guidance stated that before considering 

a nonbank financial company for 

potential designation under section 113 

of the Dodd-Frank Act, the Council 

would exhaust all available alternatives 

by prioritizing an ‘‘activities-based 

approach,’’ perform a cost-benefit 

analysis, and assess a company’s 

likelihood of material financial distress. 

As explained below, the Council has 

determined that these steps are not 

legally required, are not useful or 

appropriate, and would unduly hamper 

the Council’s ability to use the statutory 

designation authority in relevant 

circumstances: 

• By prioritizing other approaches to 

mitigating risks to financial stability, the 

2019 Interpretive Guidance generally 

allowed the Council to consider a 

nonbank financial company for 

potential designation only after the 

Council completed a multi-step process 

in which the Council would wait for 

existing regulators to address identified 

risks to financial stability, obstructing 

the Council’s ability to respond to risks 

to financial stability in a timely fashion. 

• Cost-benefit analysis is not in the 

list of considerations Congress 

specifically required the Council to 

consider in a designation, and due to 

the unpredictability of financial crises, 

such an analysis is not reasonably 

estimable, useful, or warranted in this 

context. 

• Assessing a nonbank financial 

company’s likelihood of material 

financial distress is not among the tasks 

Congress set for the Council and could 

undermine financial stability by 

spurring a run on a company that is 

designated or under review for potential 

designation. 

Unlike the 2012 Interpretive Guidance 

and the 2019 Interpretive Guidance, the 

Final Guidance is focused on the 

Council’s procedures for nonbank 

financial company designations. It 

therefore does not discuss the 

substantive analytic factors the Council 

applies in its assessments of nonbank 

financial companies. The Council has 

issued a separate document—the 

Analytic Framework—regarding its 

approach to identifying, assessing, and 

responding to potential risks to U.S. 

financial stability. The Analytic 

Framework provides additional public 

transparency into how the Council 

expects to consider any type of risk to 

financial stability, regardless of which 

of the Council’s authorities may be used 

to address the risk. 

Similarly, the Final Guidance does 

not include the 2019 Interpretive 

Guidance’s definition of ‘‘threat to the 

financial stability of the United States’’ 

as requiring ‘‘severe damage on the 

broader economy.’’ 15 The Council has 

determined that this definition was 

overly restrictive and in conflict with 

the Council’s statutory purpose ‘‘to 

respond to emerging threats to the 

stability of the United States financial 

system.’’ 16 Instead, as described in 

detail below, the Analytic Framework 

states that events or conditions that 

could substantially impair the financial 

system’s ability to support economic 

activity would constitute a threat to 

financial stability. 

With respect to the Council’s 

procedures for nonbank financial 

company designations and annual 

reevaluations of designations, the Final 


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17Because the Final Guidance itself appears in 

narrative form and makes only minor changes to the 

designation process described in the Council’s 

existing guidance—separate from the modification 

of the substantive analytic content discussed 

below—this preamble does not include a complete 

and detailed description of the designation process, 

which appears in the Final Guidance itself. Instead, 

the following overview focuses on the Council’s 

reasons for adopting the Final Guidance, key 

changes from the 2019 Interpretive Guidance and 

the Proposed Guidance, and responses to comments 

received on the Proposed Guidance. 

18This discussion provides an abbreviated 

summary of the procedural steps of the Council’s 

nonbank financial company designation process. 

The Final Guidance itself sets forth the process the 

Council expects to follow and should be consulted 

with respect to the elements of that process. 

19 In each stage of the designation process, the 

Council may also consult with, request information 

from, or coordinate with other state or federal 

financial regulatory agencies that have jurisdiction 

over the nonbank financial company or its 

activities. 

20The Council’s Deputies Committee is 

composed of senior officials from each Council 

member and member agency. See Bylaws of the 

Deputies Committee of the Financial Stability 

Oversight Council, available at https://fsoc.gov. 

21The Nonbank Financial Companies 

Designations Committee supports the Council in 

fulfilling the Council’s responsibilities to consider, 

make, and review Council determinations regarding 

nonbank financial companies under section 113 of 

the Dodd-Frank Act. See Charter of the Nonbank 

Financial Companies Designations Committee of 

the Financial Stability Oversight Council, available 

at https://fsoc.gov. 22 12 CFR 1310.10(b). 

Guidance makes only minor changes to 

the 2019 Interpretive Guidance. Among 

other things, the Final Guidance 

continues to provide for significant 

engagement and communication 

between the Council and a nonbank 

financial company under review for 

potential designation, and with the 

company’s primary financial regulator. 

In addition to these pre-existing 

features, the Final Guidance provides 

further detail on how the Council 

expects to identify nonbank financial 

companies for preliminary evaluation to 

assess the risks they could pose to U.S. 

financial stability. The Council believes 

that under these procedures, the 

designation process will be rigorous and 

transparent.17

C. Process for Nonbank Financial 

Company Determinations 

As described in the Final Guidance,18

the Council expects generally to follow 

a two-stage process in considering a 

nonbank financial company for 

potential designation under section 113 

of the Dodd-Frank Act. This process is 

designed to enable substantial 

engagement with the company under 

consideration and its primary financial 

regulator,19 in recognition of the 

primary financial regulator’s knowledge 

regarding the company and its market. 

The Final Guidance does not prioritize 

the designation authority above other 

approaches to mitigating risks to 

financial stability; instead, the Council’s 

process explicitly contemplates that 

identified risks may be addressed 

through alternatives to designation, 

such as nonbinding recommendations to 

primary financial regulatory agencies. 

The Council does not expect that every 

company that comes under review will 

progress to a proposed or final 

designation, and it is the Council’s goal 

that companies will have ample 

opportunities to provide relevant 

information to and engage with the 

Council as part of a transparent and 

durable designation process. 

The initial identification of 

companies that the Council may review 

in the first stage of the designation 

process (Stage 1) is a function of the 

Council’s staff-level committees, which 

are responsible for monitoring and 

analyzing financial markets, financial 

companies, the financial system, and 

issues related to financial stability. 

These committees monitor the financial 

system and report to the Council’s 

Deputies Committee 20 regarding 

potential risks to U.S. financial stability 

that they identify. If an identified risk 

relates to one or more nonbank financial 

companies that may merit review, the 

Council may review those companies in 

Stage 1. Alternatively, the Deputies 

Committee may direct a staff-level 

committee or working group to further 

assess the identified risks or direct the 

Council’s Nonbank Financial 

Companies Designations Committee 21

to conduct an initial analysis of one or 

more companies based on the riskassessment approach described in the 

Analytic Framework. Following any 

such analysis, the Council may review 

one or more companies in Stage 1. 

Stage 1 involves a preliminary 

analysis of nonbank financial 

companies to assess the risks they could 

pose to U.S. financial stability. Review 

in this stage is based on quantitative and 

qualitative information available to the 

Council primarily through public and 

regulatory sources and includes 

consultation with the company’s 

primary financial regulator (if any), as 

appropriate. Among other procedural 

safeguards, the Final Guidance states 

that the company is notified of its 

consideration in Stage 1 at least 60 days 

before the Council votes on whether to 

evaluate the company further in the 

second stage of review (Stage 2). This 

provides the company with an 

opportunity voluntarily to submit 

relevant information to the Council and 

to meet with staff who are leading the 

Council’s analysis. A nonbank financial 

company that is identified for review in 

Stage 2 will receive an additional notice 

that it is being considered for a 

proposed designation. The Council 

wishes to underscore, as the Final 

Guidance notes, that its work in Stage 

1 is preliminary. A decision to 

commence review of a company in 

Stage 1, or to continue a review in Stage 

2, does not constitute a final decision 

regarding whether the company should 

be designated. 

Stage 2 involves an in-depth review of 

a nonbank financial company using 

information collected directly from the 

company through the OFR, as well as 

public and regulatory information. Stage 

2 involves significant engagement with 

the company under review and its 

primary financial regulator. Following 

notice of a Council decision to evaluate 

the company in Stage 2, the Council 

will submit to the company a request 

that it provide information that the 

Council deems relevant to the Council’s 

evaluation. The nonbank financial 

company will also be provided an 

opportunity to submit any other written 

information it deems relevant. The 

Council will make staff representing its 

members available to meet with the 

representatives of any company that 

enters Stage 2, to explain the evaluation 

process and the framework for the 

Council’s analysis, and the Council 

expects that its Deputies Committee will 

also grant a request to meet with a 

company in Stage 2. Further, 

communication during Stage 2 will be 

two-way: For example, if the analysis in 

Stage 1 has identified specific aspects of 

the company’s operations or activities as 

the primary focus for the Council’s 

evaluation, staff will notify the company 

of those specific aspects, enabling the 

company to understand and provide 

information relevant to those concerns. 

The Council will also notify any 

nonbank financial company in Stage 2 

if the company ceases to be considered 

for a determination. 

At the conclusion of Stage 2, the 

Council may consider whether to make 

a proposed determination with respect 

to the nonbank financial company (a 

Proposed Determination) through a 

process that emphasizes transparency 

through additional notice, engagement, 

and procedural safeguards. A Proposed 

Determination requires a vote of twothirds of the voting members of the 

Council then serving, including an 

affirmative vote by the Chairperson of 

the Council, and cannot be delegated by 

the Council.22 Following a Proposed 

Determination, the Council will issue a 

written notice of the Proposed 


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23 Dodd-Frank Act section 113(e)(1), 12 U.S.C. 

5323(e)(1). 

24 12 CFR 1310.10(b). 

25 Dodd-Frank Act section 113(e)(3), 12 U.S.C. 

5323(e)(3); see also 12 CFR 1310.21 and 1310.22. 

26The Council is subject to statutory and 

regulatory requirements to maintain the 

confidentiality of certain information submitted to 

it by a nonbank financial company or its regulators. 

See Dodd-Frank Act section 112(d)(5), 12 U.S.C. 

5322(d)(5); see also 12 CFR 1310.20(e). In light of 

these confidentiality obligations, such confidential 

information will be redacted from the materials that 

the Council makes publicly available, although the 

Council does not expect to restrict a company’s 

ability to disclose such information. 

27 Dodd-Frank Act section 113(d), 12 U.S.C. 

5323(d). 

28Some commenters also advocated providing 

the ‘‘full evidentiary record’’ to the company under 

review before a Council vote on a Final 

Determination. The Council appreciates the 

importance of transparency and dialogue with a 

company under review and will provide a company 

under review with a written explanation of the 

basis of any Proposed Determination as well as the 

opportunity for a hearing, among other 

opportunities to engage with the Council and staff 

representing Council members and member 

agencies. 

29 84 FR at 71,767 (Dec. 30, 2019). 

Determination to the nonbank financial 

company, which will include an 

explanation of the basis of the Proposed 

Determination.23 Promptly after the 

Council votes to make a Proposed 

Determination regarding a company, the 

Council will also provide the company’s 

primary financial regulator with the 

written explanation of the basis of the 

Council’s Proposed Determination 

(subject to appropriate protections for 

confidential information). A nonbank 

financial company that is subject to a 

Proposed Determination may request a 

hearing to contest the Proposed 

Determination in accordance with 

section 113(e) of the Dodd-Frank Act 

and applicable Council procedures. 

After making a Proposed 

Determination and holding any written 

or oral hearing if requested, the Council 

may vote to make a final determination 

that the company will be subject to 

supervision by the Federal Reserve and 

prudential standards (a Final 

Determination). Like a Proposed 

Determination, a Final Determination 

requires a vote of two-thirds of the 

voting members of the Council then 

serving, including an affirmative vote by 

the Chairperson of the Council, and 

cannot be delegated by the Council.24 If 

the Council makes a Final 

Determination, it will provide the 

company with a written notice of its 

Final Determination, including an 

explanation of the basis for the 

Council’s decision.25 The Council will 

also provide the company’s primary 

financial regulator with the written 

explanation of the basis of the Council’s 

Final Determination (subject to 

appropriate protections for confidential 

information) and will publicly release 

the explanation of the Council’s basis 

for the Final Determination.26

After the Council makes a Final 

Determination regarding a nonbank 

financial company, the Council intends 

to continue to encourage the company 

or its regulators to take steps to mitigate 

the potential risks identified in the 

Council’s written explanation of the 

basis for its Final Determination. The 

Council is required to reevaluate each 

Final Determination at least annually 

and to rescind the designation if the 

Council determines that the company 

no longer meets the statutory standards 

for designation under section 113 of the 

Dodd-Frank Act.27 The annual 

reevaluation process is a key 

mechanism through which a company’s 

designation may be rescinded if the 

company has mitigated the threat that 

its material financial distress or 

activities could pose to U.S. financial 

stability. Moreover, once every five 

years, each nonbank financial company 

subject to a Final Determination will 

have an opportunity for an oral hearing 

before the Council at which the 

company can contest the designation. 

Numerous public comments on the 

Proposed Guidance supported the 

proposed approach of maintaining 

certain procedural steps that were set 

forth in the 2019 Interpretive Guidance, 

including the two-stage designation 

process, extensive engagement by the 

Council and staff with companies under 

review and their primary financial 

regulators, and the Council’s annual 

reevaluations of previous designations. 

Some commenters stated that the twostage process, including notice and 

opportunities for engagement between 

the Council and the company under 

review and its primary financial 

regulator, provides a balanced and 

transparent approach to designation. 

Others expressed support for specific 

aspects of the Proposed Guidance. For 

example, one commenter stated that the 

Council should retain the ability to 

consider companies and their 

subsidiaries either together or separately 

for designation because modern risk 

management emphasizes the importance 

of understanding and managing a firm’s 

risks holistically, across the entire 

enterprise. 

Some commenters noted that the 

Proposed Guidance would increase 

public transparency regarding how 

companies are identified for review for 

a potential designation under section 

113 of the Dodd-Frank Act. As 

discussed above, the Final Guidance 

provides additional detail, compared to 

the 2019 Interpretive Guidance, on how 

the Council expects to identify nonbank 

financial companies for preliminary 

review in Stage 1. 

Other commenters suggested 

procedural changes to the designation 

process in the Proposed Guidance. For 

example, commenters suggested 

accelerating the designation process by 

combining Stage 1 and Stage 2 or by 

removing the opportunity in Stage 1 for 

a company under review to submit 

information to the Council. At least one 

commenter suggested adding a step in 

the process to determine whether 

existing regulation is insufficient to 

mitigate relevant threats to financial 

stability. Other commenters suggested 

expanding the notice periods provided 

in the Proposed Guidance, including a 

longer notice period in advance of a 

vote to commence Stage 2 or a 120-day 

period for a company to review all 

information before the Council 28 in 

advance of a Final Determination vote. 

The Council has declined to modify the 

stages or notice periods as proposed, 

which enable appropriate time periods 

for engaging with companies and their 

primary financial regulators while not 

unduly delaying the Council’s ability to 

act to address a potential threat to U.S. 

financial stability. Further, the proposed 

two-stage process enables the Council 

gradually to intensify its review of a 

company, beginning with a review in 

Stage 1 based primarily on available 

information and potentially moving to 

in-depth engagement with the company 

and its primary financial regulator in 

Stage 2. 

Some commenters requested that the 

Council further explain how companies 

under consideration in Stage 1 or Stage 

2 can take steps that would avoid a 

designation. Others recommended that 

the guidance include language, found in 

the 2019 Interpretive Guidance, that the 

information the Council provides to a 

company during Stage 1 ‘‘may enable 

the company to act to mitigate any risks 

to financial stability and thereby 

potentially avoid becoming subject to a 

Council determination.’’ 29 The Council 

agrees that its engagement with a 

company under review may enable the 

company to act to mitigate the threat its 

material financial distress or activities 

could pose to financial stability. 

Further, if the company were to mitigate 

those risks before a Final Designation 

such that its material financial distress 

or activities could not pose a threat to 

financial stability, designation would 

not be warranted. Accordingly, the 

Council has added the language quoted 

above to the Final Guidance. 


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30 Dodd-Frank Act section 165(a)(2)(A), 12 U.S.C. 

5365(a)(2)(A). 

31See, e.g., Dodd-Frank Act sections 112(a)(2)(A), 

(C), (D), (E), (F), (I), and (K), 12 U.S.C. 5322(a)(2)(A), 

(C), (D), (E), (F), (I), and (K). 

32The Proposed Guidance refers to the notice 

provided to companies in Stage 1 in both section 

II.a, which provides an overview of the 

determination process, and section II.b, which 

describes Stage 1 in detail. The Final Guidance 

clarifies these references by specifying that the 

description in section II.a refers to the notice 

provided in section II.b. 

33Uniform quantitative thresholds were not 

included in the 2019 Interpretive Guidance. 

Nonetheless, while the Council expects 

to communicate to companies under 

review regarding potential risks to 

financial stability that have been 

identified, in light of the importance of 

acting promptly to mitigate potential 

threats to financial stability, the Council 

does not expect to advise companies on 

actions they may take, delay the 

designation process in connection with 

potential actions that a company 

considers taking, or refrain from a 

proposed or final designation based on 

actions that a company has proposed 

but not completed. 

With respect to the transparency 

measures embedded in the designation 

process under the Proposed Guidance, 

several commenters voiced support, 

including noting that the Council has 

continued the procedural transparency 

provided for in the 2019 Interpretive 

Guidance. For example, some 

commenters noted that the 

opportunities for engagement with the 

Council and submission of relevant 

information to it would facilitate 

transparency for companies under 

review. Other commenters specifically 

noted the importance of the Proposed 

Guidance’s commitment to publicly 

release the written explanation of the 

Council’s basis for a Final 

Determination. 

Several commenters raised other 

transparency-related suggestions. Some 

stated that more information regarding 

how the Council considers threats to 

financial stability could give companies 

additional insight and help mitigate 

risks and avoid designation. As noted 

above, the Final Guidance states that 

engagement with a company under 

review may enable the company to 

mitigate any risks to financial stability. 

The Council’s Analytic Framework also 

provides additional transparency into 

how the Council considers risks to 

financial stability. The Council believes 

that the numerous transparency 

mechanisms in the Final Guidance, 

which provide opportunities for 

engagement with companies under 

review and their primary financial 

regulators in Stage 1, in Stage 2, after a 

Proposed Determination, and after a 

Final Determination, provide an 

appropriate level of transparency to 

companies regarding the Council’s 

reviews. Some commenters also noted 

that the Federal Reserve’s establishment 

of prudential standards and an 

applicable supervisory regime only after 

a company’s designation leaves opaque 

the consequences of designation. 

However, the division of authority 

between the Council and the Federal 

Reserve is an element of the statutory 

structure Congress adopted, not the 

Council’s designation procedures. In 

developing prudential standards 

applicable to designated nonbank 

financial companies, the Federal 

Reserve is required to differentiate 

among companies on an individual 

basis or by category, taking into 

consideration their capital structure, 

riskiness, complexity, financial 

activities, size, and any other riskrelated factors that the Federal Reserve 

deems appropriate.30

Several commenters suggested the 

Council further emphasize the 

importance of the Council’s engagement 

with primary financial regulators. The 

Proposed Guidance noted the Council’s 

expectation of engagement with the 

primary financial regulator of a 

company under review at every stage of 

the designation process, and the Final 

Guidance maintains that commitment. 

The Council extensively engages with 

federal and state financial regulatory 

agencies to identify, assess, and respond 

to risks to financial stability. Nearly all 

the Council members represent such 

agencies. Many of the Council’s 

statutory duties relate to promoting 

interagency collaboration, monitoring 

financial market developments, 

facilitating information sharing, and 

recommending that existing regulators 

address risks.31 These activities 

comprise the foundation of the 

Council’s work, and under the Final 

Guidance the Council will continue to 

work with regulators to identify, assess, 

and respond to risks to financial 

stability. 

Other commenters suggested that the 

Council should notify a company’s 

primary financial regulator that the 

company is under consideration in 

Stage 1. The Proposed Guidance and 

Final Guidance provide that a 

company’s primary financial regulator 

will receive notice that the company is 

under review no later than when the 

company receives notice, which occurs 

no later than 60 days before the Council 

votes on whether to evaluate the 

company in Stage 2. In some cases, the 

primary financial regulator may receive 

earlier notice, including if the Council 

has been engaging with the primary 

financial regulator in previous efforts, 

unrelated to a potential designation, to 

evaluate the potential threat to financial 

stability, or if the primary financial 

regulator is among the Council’s 

member agencies. In general, however, 

the Council believes that receiving 

notice simultaneously with the 

company during Stage 1 will enable the 

primary financial regulator 

appropriately to engage with the 

Council.32

Other commenters suggested that the 

Council should not only engage with a 

company’s primary financial regulator 

during the designation process, but 

should defer to the primary financial 

regulator’s views. The Council firmly 

supports close engagement with primary 

financial regulators, but deferring to 

those regulators during a review under 

section 113 of the Dodd-Frank Act 

would not fulfill the Council’s duty to 

determine whether a company under 

review meets the statutory standard for 

designation. The Council values the role 

of primary financial regulators due to 

their expertise regarding their regulated 

entities or markets, but Congress 

charged the Council with making 

determinations regarding threats to U.S. 

financial stability. The Council will 

engage with primary financial regulators 

and take their views into account, but 

ultimately the Council itself is 

responsible for determining whether a 

nonbank financial company meets the 

statutory standard for designation. 

Some commenters called for 

additional clarity regarding the stafflevel process for identifying nonbank 

financial companies for preliminary 

evaluation, or recommended that the 

Council adopt uniform quantitative 

thresholds, such as those in the 2012 

Interpretive Guidance, to identify 

companies for review in Stage 1. The 

Council believes that the process set 

forth in the Final Guidance under 

‘‘Identification of Company for Review 

in Stage 1’’ appropriately explains the 

Council’s process. To the extent 

commenters seek information regarding 

the substantive analyses the Council 

and staff representing Council members 

expect to use in considering risks that 

relate to a company that may be 

considered in Stage 1, those analyses are 

described in the Analytic Framework. 

While quantitative thresholds such as 

those in the 2012 Interpretive 

Guidance 33 provide some clarity 

regarding companies that are most likely 

to come under review for potential 

designation, even that previous 

guidance noted that firms not captured 


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34 In accordance with the Council’s Rules of 

Organization, the Council may delegate authority, 

including to its Deputies Committee, to implement 

and take any actions under the Final Guidance, 

except with respect to actions that are expressly 

nondelegable under the Dodd-Frank Act, the 

Council’s Rules of Organization, or the Final 

Guidance. 

35The Final Guidance retains the 2019 

Interpretive Guidance’s interpretations of 

‘‘company’’ and ‘‘material financial distress,’’ key 

terms in section 113 of the Dodd-Frank Act that are 

left undefined in the statute. The Final Guidance 

also includes the 2019 Interpretive Guidance’s 

interpretation of ‘‘nonbank financial company 

supervised by the Board of Governors,’’ a term 

defined in the Dodd-Frank Act. The preamble to the 

Proposed Guidance noted the Council’s proposal to 

retain its 2019 interpretation of this statutory term, 

and the Proposed Guidance contained language 

from the 2019 Interpretive Guidance regarding the 

practical implications of that interpretation. 

Consistent with the Proposed Guidance, the Final 

Guidance states that ‘‘the Council intends to 

interpret ‘nonbank financial company supervised 

by the Board of Governors’ as including any 

nonbank financial company that acquires, directly 

or indirectly, a majority of the assets or liabilities 

of a company that is subject to a final determination 

of the Council.’’ 

36Comments on the Proposed Analytic 

Framework are addressed in the preamble to the 

Analytic Framework. 

37At least one commenter stated that the Analytic 

Framework should be appended to the 2012 Rule— 

the Council’s procedural rule on nonbank financial 

company designations—by incorporating it into the 

appendix to 12 CFR part 1310. The Analytic 

Framework explains how the Council approaches 

risks to financial stability generally, so it would not 

appropriately be appended to the 2012 Rule, which 

is focused exclusively on nonbank financial 

company designations. 

by the thresholds could also be 

reviewed. Further, the Council believes 

that in light of the distinct nature of 

nonbank financial companies in diverse 

sectors of the financial system, uniform 

quantitative thresholds do not 

adequately align with the range of risks 

that nonbank financial companies’ 

material financial distress or activities 

could pose. Because the activities of 

nonbank financial companies 

continuously evolve, uniform 

thresholds that are applicable across the 

financial sector may also become 

obsolete or less relevant to specific 

risks. The Council believes the approach 

described in the Final Guidance and the 

Analytic Framework will be more 

conducive to identifying firms for 

consideration for designation than 

uniform quantitative thresholds such as 

those that the Council applied in Stage 

1 under the 2012 Interpretive Guidance. 

A few commenters recommended that 

the guidance prohibit the Council from 

delegating its authority to commence a 

review of a company in Stage 1.34 Some 

commenters further contended that a 

Council vote on commencing Stage 1 is 

legally required by either the DoddFrank Act or the Administrative 

Procedure Act (APA). However, while 

the Dodd-Frank Act specifies that the 

Council may not delegate its vote to 

designate a company, it contains no 

such requirement regarding earlier steps 

in the process, such as commencing 

Stage 1. Indeed, the statute itself does 

not contemplate any procedural 

safeguards for companies under review 

prior to a Council vote on a Proposed 

Determination; Stage 1 and Stage 2 are 

investigatory processes the Council has 

voluntarily adopted to enhance its 

analytic rigor and to promote 

transparency. The APA likewise 

contains no requirement related to the 

delegation of authority to commence 

Stage 1, which involves only the 

interlocutory decision to initiate an 

investigatory process and does not 

determine any rights or obligations of 

any person or entity or cause any legal 

consequences. The Final Guidance does 

not prohibit a delegation of the vote to 

commence Stage 1, but it also does not 

mandate such a delegation. Moreover, 

under the Final Guidance the Council 

itself will vote multiple times during the 

designation process, including voting on 

commencing Stage 2, a Proposed 

Designation, and a Final Designation, 

and potentially the determination that 

the administrative record in Stage 2 is 

complete. 

D. Substantive Analyses 

The Council has issued a separate 

document—the Analytic Framework— 

that describes in detail the Council’s 

approach for identifying, assessing, and 

responding to potential risks to financial 

stability. The Analytic Framework 

explains how the Council analyzes risks 

to financial stability, regardless of both 

the origin of a particular risk (including 

whether the risk arises from widely 

conducted activities or from individual 

entities) and which of the Council’s 

authorities may be used to address the 

risk. The Council believes that the 

Analytic Framework provides new 

public transparency into how the 

Council expects to consider risks to 

financial stability. Among other things, 

the Analytic Framework interprets 

terms that broadly frame the Council’s 

work, including ‘‘financial stability’’ 

and ‘‘threat to financial stability.’’ 

Therefore, while the 2012 Interpretive 

Guidance and the 2019 Interpretive 

Guidance discussed both nonbank 

financial company designation 

procedures and also substantive analytic 

factors and standards the Council 

applies in its assessment of nonbank 

financial companies, the Final Guidance 

is limited to the Council’s procedures 

related to nonbank financial company 

designations.35 The substantive factors 

the Council considers in analyzing 

potential risks to financial stability are 

addressed in the Analytic Framework. 

The Council believes that publishing its 

procedures for nonbank financial 

company designations (the Final 

Guidance) separately from its 

explanation of how it substantively 

assesses potential financial stability 

risks (the Analytic Framework) 

enhances public transparency and 

provides clarity regarding the range of 

authorities the Council uses to respond 

to risks.36

1. Analytic Factors 

The 2019 Interpretive Guidance 

described both the Council’s procedures 

and analytic factors that the Council 

expected to apply in nonbank financial 

company designations. For example, 

that guidance described channels the 

Council deemed most likely to facilitate 

the transmission of the negative effects 

of a nonbank financial company’s 

material financial distress or activities 

to other financial firms and markets. 

These descriptions do not appear in the 

Final Guidance and will not be included 

in Appendix A to 12 CFR part 1310. 

Instead, a description of the analyses the 

Council expects to apply, both within 

and outside of the designation context, 

appears in its separately issued Analytic 

Framework. 

Some commenters supported 

separating the Council’s guidance on the 

nonbank financial company designation 

process from the discussion of the 

substantive analyses it uses to consider 

risks to financial stability, citing, among 

other things, the procedural nature of 

the Proposed Guidance (and by 

extension, the Final Guidance) and the 

benefits of establishing a unified 

framework for considering risks without 

regard to their origin. Additional 

commenters noted that adopting a 

broadly applicable Analytic Framework 

will help the Council and regulators 

take a consistent approach, regardless of 

the origin of a particular risk, and will 

provide transparency that may help 

nonbank financial companies identify 

and mitigate risks that might otherwise 

lead the firms to be considered for 

potential designation under the Final 

Guidance. 

Other commenters argued that the 

Final Guidance should retain a 

description of the Council’s analysis 

specifically applicable to nonbank 

financial company designations.37 As 

explained above, the Council believes 

that issuing separate documents 

regarding the procedural aspects of the 

nonbank financial company designation 

process and the Council’s substantive 


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38As discussed in section II.G below, the 

‘‘vulnerabilities’’ described in the Analytic 

Framework do not imply an intention to consider 

a company’s likelihood of material financial 

distress. The vulnerabilities described in the 

Analytic Framework are characteristics that most 

commonly contribute to risks to financial stability. 

They are not meant to relate to the likelihood of a 

company’s material financial distress. Although 

some commenters equated a company’s 

‘‘vulnerability’’ with the company’s likelihood of 

material financial distress, that is not how the 

Council uses the term in the Analytic Framework 

or the Final Guidance. 

39Consistent with its longstanding precedent, the 

identified transmission channels are nonexhaustive. See 2019 Interpretive Guidance, 84 FR 

at 71,763 (Dec. 30, 2019) (‘‘The transmission 

channels . . . set forth below are not exhaustive 

and may not apply to all nonbank financial 

companies under evaluation. . . . The Council may 

also consider other relevant channels through 

which risks could be transmitted from a particular 

nonbank financial company and thereby pose a 

threat to U.S. financial stability.’’); see also 2012 

Interpretive Guidance, 77 FR at 21,657 (April 11, 

2012) (‘‘The Council intends to continue to evaluate 

additional transmission channels and may, at its 

discretion, consider other channels through which 

a nonbank financial company may transmit the 

negative effects of its material financial distress or 

activities and thereby pose a threat to U.S. financial 

stability.’’). 

analysis of risks to financial stability is 

the better approach. History illustrates 

that many factors, such as leverage, 

liquidity risk, and operational risk, 

regularly recur in different forms and 

under different conditions to generate 

risks to financial stability, and the 

Analytic Framework describes 

vulnerabilities that commonly generate 

or exacerbate risks to financial stability 

and the mechanisms by which negative 

effects can be transmitted more 

broadly.38 The Council may consider 

those risk factors and transmission 

channels in activities-based reviews, 

entity-specific analyses, or other work.39

Accordingly, the Council believes that 

describing these substantive analytic 

approaches broadly, rather than in a 

context limited to nonbank financial 

company designations, is most 

appropriate. 

A number of commenters addressed 

the relationship between the statutory 

standards and statutory considerations 

for nonbank financial company 

designations, on one hand, and the 

vulnerabilities, sample metrics, and 

transmission channels described in the 

Analytic Framework, on the other hand. 

Some commenters questioned whether 

the Analytic Framework would displace 

the statutory standards and 

considerations established by section 

113 of the Dodd-Frank Act, and other 

commenters asked for more detail 

regarding how the Council would apply 

the Analytic Framework’s 

vulnerabilities, sample metrics, and 

transmission channels in the nonbank 

financial company designation context. 

Some commenters stated that the 

Proposed Analytic Framework and the 

Proposed Guidance did not provide 

enough detail on how the Council 

considers risks to financial stability. 

With respect to nonbank financial 

company designations, the Dodd-Frank 

Act sets forth the standard for 

designations and certain specific 

considerations that the Council must 

take into account in making any 

determination under section 113. 

Consistent with the statutory 

requirements, the Council will apply the 

statutory standard and each of the 10 

statutory considerations in evaluations 

of nonbank financial companies for 

potential designation. 

At the same time, the Analytic 

Framework describes the Council’s 

approach to evaluating potential risks to 

U.S. financial stability, including in the 

context of a review under section 113 of 

the Dodd-Frank Act. Accordingly, the 

vulnerabilities and transmission 

channels described in the Analytic 

Framework will inform the Council’s 

assessment of the designation standard 

and mandatory considerations under 

section 113. As the Proposed Guidance 

and Final Guidance note, in the 

designation process, including to 

identify companies for potential review 

in Stage 1, the Council and its staff-level 

committees expect to consider the 

vulnerabilities, types of sample metrics, 

and transmission channels described in 

the Analytic Framework. 

Other commenters asked for greater 

detail on how the Council would assess 

the vulnerabilities described in the 

Analytic Framework. As also discussed 

in the preamble to the Analytic 

Framework, the Council has addressed 

these requests by adding further details 

to several listed vulnerabilities in the 

Analytic Framework regarding the types 

of sample metrics the Council expects to 

use to assess them. 

Some commenters noted that the 

vulnerabilities described in the Analytic 

Framework do not restate the 10 

mandatory considerations in section 113 

of the Dodd-Frank Act, and several 

objected to the vulnerabilities on that 

basis. A purpose of the Analytic 

Framework, however, is to provide 

transparency into how the Council 

considers risks to financial stability in 

general. Repetition of the statutory 

language applicable to nonbank 

financial company designations 

specifically would not further that goal. 

In the context of a review of a nonbank 

financial company under section 113 of 

the Dodd-Frank Act, the vulnerabilities 

and transmission channels described in 

the Analytic Framework clarify the 

statutory considerations. For example: 

• The section 113 considerations of 

leverage and concentration are both 

listed as vulnerabilities in the Analytic 

Framework, and the Analytic 

Framework provides additional insight 

into these issues. 

• The section 113 consideration of 

‘‘the extent and nature of the 

transactions and relationships of the 

company with other significant nonbank 

financial companies and significant 

bank holding companies’’ may relate to 

the ‘‘interconnections’’ vulnerability 

and ‘‘exposures’’ transmission channel 

in the Analytic Framework, among 

others. 

• The section 113 consideration of 

‘‘the amount and types of the liabilities 

of the company, including the degree of 

reliance on short-term funding’’ may 

relate to a number of vulnerabilities in 

the Analytic Framework, including 

‘‘leverage,’’ ‘‘liquidity risk and maturity 

mismatch,’’ ‘‘interconnections,’’ and 

‘‘inadequate risk management,’’ as well 

as the ‘‘exposures’’ and ‘‘asset 

liquidation’’ transmission channels, 

among others. 

• The section 113 considerations of 

‘‘the importance of the company as a 

source of credit for households, 

businesses, and State and local 

governments and as a source of liquidity 

for the United States financial system’’ 

and ‘‘the importance of the company as 

a source of credit for low-income, 

minority, or underserved communities, 

and the impact that the failure of such 

company would have on the availability 

of credit in such communities’’ may 

relate to the ‘‘interconnections’’ and 

‘‘concentration’’ vulnerabilities and 

‘‘critical function’’ transmission channel 

in the Analytic Framework, among 

others. 

• The section 113 consideration of 

‘‘the extent to which assets are managed 

rather than owned by the company, and 

the extent to which ownership of assets 

under management is diffuse’’ may 

relate to the ‘‘interconnections’’ and 

‘‘concentration’’ vulnerabilities in the 

Analytic Framework, among others, and 

each of the transmission channels. 

• The section 113 consideration of 

‘‘the degree to which the company is 

already regulated by 1 or more primary 

financial regulatory agencies’’ may 

relate to the vulnerability of 

‘‘inadequate risk management,’’ among 

others, and each of the transmission 

channels in the Analytic Framework. 

Although the Analytic Framework 

provides transparency into how the 

Council considers risks in general, the 

Council stresses that any determination 

regarding a nonbank financial company 

under section 113 of the Dodd-Frank 

Act will be made based on the statutory 


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40 Dodd-Frank Act section 113(e), 12 U.S.C. 

5323(e). 

41Council Statement on Activities-Based Review 

of Secondary Mortgage Market Activities (Sept. 25, 

2020), available at https://home.treasury.gov/ 

system/files/261/Financial-Stability-OversightCouncils-Statement-on-Secondary-MortgageMarket-Activities.pdf. 

42Council Statement on Money Market Fund 

Reform (June 11, 2021), available at https://

home.treasury.gov/system/files/261/FSOC_

Statement_6-11-21.pdf. 

43Council Report on Climate-Related Financial 

Risk (Oct. 21, 2021), available at https://

home.treasury.gov/system/files/261/FSOC-ClimateReport.pdf; see also Fact Sheet: The Financial 

Stability Oversight Council and Progress in 

Addressing Climate-Related Financial Risk (July 28, 

2022), available at https://home.treasury.gov/ 

system/files/261/FSOC_20220728_Factsheet_

Climate-Related_Financial_Risk.pdf. 

44Council Statement on Nonbank Financial 

Intermediation (Feb. 4, 2022), available at https:// 

home.treasury.gov/system/files/261/FSOC_

Nonbank_Financial_Intermediation.pdf. 

45Council Report on Digital Asset Financial 

Stability Risks and Regulation (Oct. 3, 2022), 

available at https://home.treasury.gov/system/files/ 

261/FSOC-Digital-Assets-Report-2022.pdf. 

46 Dodd-Frank Act section 113(a)(1), 12 U.S.C. 

5323(a)(1). The Dodd-Frank Act separately sets 

forth the same statutory standard for the 

designation of foreign nonbank financial 

companies. Dodd-Frank Act section 113(b)(1), 12 

U.S.C. 5323(b)(1). In the context of foreign nonbank 

financial companies, section 113 also lists the 

considerations that the Council must take into 

account, which are similar to the considerations 

applicable to U.S. nonbank financial companies, in 

some cases limited to the foreign nonbank financial 

companies’ U.S. business or activities. See DoddFrank Act section 113(b)(2), 12 U.S.C. 5323(b)(2). 

The Final Guidance and this preamble do not 

generally distinguish between U.S. nonbank 

financial companies and foreign nonbank financial 

companies, and the Council intends for the Final 

Guidance to apply in the same manner to both types 

of companies. 

47The Council’s statutory responsibilities related 

to financial stability are generally focused on the 

United States (see, e.g., Dodd-Frank Act section 

112(a)(1)(A), 12 U.S.C. 5322(a)(1)(A) (‘‘to identify 

risks to the financial stability of the United States’’); 

112(a)(1)(C), 5322(a)(1)(C) (‘‘to respond to emerging 

threats to the stability of the United States financial 

system’’); 112(a)(2)(A), 5322(a)(2)(A) (‘‘to assess 

risks to the United States financial system’’); 

112(a)(2)(C), 5322(a)(2)(C) (‘‘to identify potential 

threats to the financial stability of the United 

States’’); 112(a)(2)(G), 5322(a)(2)(G) (‘‘identify gaps 

in regulation that could pose risks to the financial 

stability of the United States’’); 112(a)(2)(H), 

5322(a)(2)(H) (‘‘require supervision by the Board of 

Governors for nonbank financial companies that 

may risks to the financial stability of the United 

States’’)). References to the United States may be 

omitted herein solely for ease of reading. 

48The 2012 Interpretive Guidance stated the 

Council ‘‘will consider a ‘threat to the financial 

stability of the United States’ to exist if there would 

be an impairment of financial intermediation or of 

financial market functioning that would be 

sufficiently severe to inflict significant damage on 

the broader economy.’’ 77 FR at 21,657 (April 11, 

2012). 

49See also Dodd-Frank Act section 112(a)(2)(H), 

12 U.S.C. 5322(a)(2)(H) (setting forth the Council’s 

duty to ‘‘require supervision . . . for nonbank 

financial companies that may pose risks to . . . 

financial stability’’ (emphasis added)). 

standard and considerations prescribed 

by Congress. 

Several commenters suggested that 

the Council should state explicitly how 

it intends to weight the various statutory 

considerations or the vulnerabilities, 

including by stating whether some are 

more important than others. Some 

commenters stated that, unless the 

Council explains how it will consider 

relevant statutory considerations and 

vulnerabilities with sufficient detail to 

allow any nonbank financial company 

to avoid designation, the Final Guidance 

and Analytic Framework provide 

inadequate notice to companies under 

consideration. However, the Council 

must consider all of the mandatory 

considerations Congress set forth in 

section 113 of the Dodd-Frank Act, and 

the relevance of any particular 

consideration will depend on the 

relevant facts and circumstances. Thus, 

an explicit weighting scheme, 

determined outside the context of a 

specific designation, may not be suitable 

to analyze a range of companies or 

conditions. The Dodd-Frank Act itself 

provides notice to companies regarding 

the standards and considerations the 

Council will rely on to make 

determinations under section 113. 

Further, the Dodd-Frank Act provides 

that a nonbank financial company under 

consideration for designation must 

receive a written notice and an 

explanation of the basis of any Proposed 

Determination in advance of an 

opportunity for a hearing.40 The Final 

Guidance (and Analytic Framework) go 

far beyond these statutory minimums to 

provide insight into how the Council 

considers risks in general and 

opportunities for a company under 

review to understand how the Council 

considers the threat the company’s 

material financial distress or activities 

could pose to financial stability. 

The Council notes that it routinely 

provides public transparency regarding 

how it assesses various particular 

financial stability risks. For example, 

since 2020, the Council has issued 

reports or statements regarding 

secondary mortgage market activities,41

money market mutual funds,42 climaterelated financial risk,43 nonbank 

financial intermediation,44 and digital 

assets,45 in addition to its annual 

reports, all of which detail the Council’s 

views about various risks to financial 

stability and in many cases recommend 

steps for mitigation. 

2. ‘‘Threat’’ To Financial Stability 

Under section 113 of the Dodd-Frank 

Act, the Council may designate a 

nonbank financial company if the 

Council determines that the company’s 

material financial distress or activities 

‘‘could pose a threat to the financial 

stability of the United States.’’ 46 Under 

the Proposed Guidance, the Council 

proposed to evaluate a ‘‘threat to the 

financial stability of the United States’’ 

with reference to the description of 

‘‘financial stability’’ provided in the 

Proposed Analytic Framework. In 

response to public comments on this 

approach, the Council has included, in 

the Analytic Framework as adopted in 

final form, an interpretation of ‘‘threat to 

financial stability’’ 47 that is based on 

the interpretation of ‘‘financial stability’’ 

set forth in the Analytic Framework. 

A number of commenters stated that 

they supported the Council’s 

interpretation of ‘‘threat to the financial 

stability of the United States’’ in the 

2019 Interpretive Guidance and 

recommended that the Council define 

this term in the Final Guidance. Some 

commenters urged the Council to retain 

the interpretation of this term set forth 

in the 2019 Interpretive Guidance or to 

revert to the interpretation in the 2012 

Interpretive Guidance.48 The Council 

believes the interpretation of ‘‘threat to 

the financial stability of the United 

States’’ in the 2019 Interpretive 

Guidance imposed an inappropriately 

high threshold, as discussed below. One 

commenter stated that the interpretation 

of ‘‘financial stability’’ in the Proposed 

Analytic Framework was at odds with 

the Financial Stability Board’s 

interpretation of the term. The Council 

agrees that coordination with 

international bodies is important, but 

this consideration cannot supersede the 

Council’s statutorily specified duties. In 

contrast, a number of commenters 

expressed concern that the 2019 

definition eroded the Council’s 

preventative role in risk mitigation. 

Some commenters stated that the 2019 

definition effectively precluded the 

Council from fulfilling its statutory 

duties to respond to potential or 

emerging threats to financial stability. 

Some commenters noted that while the 

Dodd-Frank Act calls on the Council to 

determine whether there ‘‘could’’ be a 

threat to financial stability, the 2019 

definition required the Council to 

determine that the economy ‘‘would’’ be 

severely damaged.49

The Council appreciates this feedback 

and agrees that providing an 

interpretation of ‘‘threat to financial 

stability’’ provides clarity to nonbank 

financial companies and other 

stakeholders. As commenters noted, 

providing such an interpretation helps 

companies understand the substantive 

analytic approach the Council will use 


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50 84 FR at 71,763 (Dec. 30, 2019). 

51 Dodd-Frank Act section 165(a)(2)(A), 12 U.S.C. 

5365(a)(2)(A). 

for designations under section 113 of 

the Dodd-Frank Act and provides an 

indication of the significance of a 

potential threat to financial stability that 

may warrant a designation under 

section 113. 

The Proposed Analytic Framework 

interpreted ‘‘financial stability,’’ and the 

Council continues to view that 

interpretation as appropriate. The 

interpretation of ‘‘threat to financial 

stability’’ is, by its nature, closely 

related to the interpretation of 

‘‘financial stability,’’ and can best be 

understood when considering these two 

terms together. Further, threats to 

financial stability will be evaluated 

within the framework of the Council’s 

efforts to identify, assess, and respond 

to potential risks to financial stability, 

as set forth in the Analytic Framework. 

Therefore, the Analytic Framework 

offers the opportunity to situate the 

Council’s interpretation of a threat to 

financial stability, whether posed by a 

nonbank financial company or 

originating from other sources, within 

the Council’s broader approach. 

As noted above, many commenters 

expressed varying views regarding 

whether the Council should maintain 

the definition of ‘‘threat to the financial 

stability of the United States,’’ found in 

the 2019 Interpretive Guidance, as ‘‘the 

threat of an impairment of financial 

intermediation or of financial market 

functioning that would be sufficient to 

inflict severe damage on the broader 

economy.’’ 50 The Council views the 

2019 definition as unwarranted, and, as 

many commenters noted, the 2019 

definition contrasts sharply with the 

statutory standard under section 113 of 

the Dodd-Frank Act. In light of the 

Council’s statutory duty to act to 

address potential threats to financial 

stability, the purpose of the designation 

authority in mitigating the risks of 

financial crises, and the uncertainty 

inherent in predicting future financial 

market developments, requiring the 

Council to determine that a nonbank 

financial company’s material financial 

distress or activities could inflict 

‘‘severe damage’’ on the broader 

economy creates an unduly high 

threshold for Council action. The 

Council must be able to address threats 

that may impair the financial system 

before they are realized. The nature of 

financial crises is that the precise 

severity of harm posed by emerging 

threats may not be apparent until it is 

too late. 

Some commenters stated that the 

interpretation of ‘‘financial stability’’ in 

the Proposed Analytic Framework 

would unduly lower the standard for 

designation under section 113 of the 

Dodd-Frank Act. The Council disagrees. 

The standard for designation is set forth 

in section 113 itself. The Analytic 

Framework’s interpretation of ‘‘financial 

stability’’ does not expand the statutory 

standard. Rather, the Analytic 

Framework describes how the Council 

considers financial stability and threats 

to it. However, in response to public 

comments, the Council has included in 

the Analytic Framework, as adopted in 

final form, an interpretation of ‘‘threat to 

financial stability’’ that is based on the 

proposed interpretation of ‘‘financial 

stability’’ and that includes an 

indication of the significance of a threat 

to financial stability: Events or 

conditions that could substantially 

impair the ability of the financial system 

to support economic activity would 

constitute a threat to financial stability. 

This approach clarifies that a 

designation under section 113 would 

not be justified if a nonbank financial 

company’s material financial distress or 

activities could only cause immaterial 

impairments of the financial system. 

Some commenters indicated that the 

lack of concrete guidance on an 

interpretation of ‘‘threat to the financial 

stability of the United States’’ may 

dissuade nonbank financial companies 

from engaging in innovation and could 

lead to concentration risks. The Council 

notes that the definition of ‘‘threat to the 

financial stability of the United States’’ 

in the 2019 Interpretive Guidance did 

not specify particular activities or risk 

factors that could result in a designation 

under section 113 of the Dodd-Frank 

Act, but instead indicated the 

significance of a risk that could fall 

within the statutory standard for 

designation. The interpretation in the 

Analytic Framework, while reflecting 

different terminology than the 2019 

Interpretive Guidance, maintains this 

type of approach. For nonbank financial 

companies that wish to understand the 

activities or business characteristics that 

could lead to a potential designation 

under section 113—or that wish to 

mitigate the risks their material 

financial distress or activities could 

pose to financial stability—the Council 

encourages those companies to consider 

how the vulnerabilities and 

transmission channels described in the 

Analytic Framework may apply to their 

companies. 

3. Suitability of Designation 

The Final Guidance sets forth the 

process the Council expects to follow 

when considering nonbank financial 

companies for potential designation. 

The Council’s analytic approach to 

identifying, assessing, and responding 

to risks to financial stability and the 

substantive considerations it will take 

into account in determining whether to 

designate a company for prudential 

standards and supervision by the 

Federal Reserve are set forth in section 

113 of the Dodd-Frank Act and the 

Analytic Framework. Neither the 

Proposed Guidance nor the Final 

Guidance addresses the suitability of 

designation with respect to any 

particular entity, sector, or 

circumstances. Nevertheless, the 

Council received a number of comments 

regarding the suitability of designation 

for certain sectors, entities, or 

circumstances as well as the merits and 

disadvantages of entity-based 

designation in general. 

Several commenters stated that 

designation under section 113 of the 

Dodd-Frank Act is not generally a 

suitable response to a threat to financial 

stability. Some stated that designation 

would result in regulation that may be 

ill-fitting for some types of nonbank 

financial companies, their products or 

services, or for financial risk channels 

that are different from those of bank 

holding companies. Some commenters 

stated that designations under section 

113 are generally inadvisable because 

they would distort or disrupt markets or 

increase burdens for the designated 

nonbank financial company. However, 

the Dodd-Frank Act authorizes the 

Council to designate nonbank financial 

companies if their material financial 

distress or activities could pose a threat 

to financial stability. Further, the statute 

requires the Federal Reserve to adopt 

regulatory requirements applicable to a 

designated nonbank financial company 

and provides for the Federal Reserve to 

differentiate ‘‘among companies on an 

individual basis or by category, taking 

into consideration their capital 

structure, riskiness, complexity, 

financial activities (including the 

financial activities of their subsidiaries), 

size, and any other risk-related factors 

that the Board of Governors deems 

appropriate.’’ 51 Therefore, the Council 

will not reject in advance the use of its 

statutory authority and is adopting the 

Final Guidance to explain the process it 

would use in considering nonbank 

financial companies for designation. 

As noted above, Congress created the 

designation authority based on lessons 

learned from the financial crisis in 

2007–09, when financial distress at 

large, complex, highly interconnected, 

highly leveraged, and inadequately 

regulated nonbank financial companies 


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52See Dodd-Frank Act section 113(a)(2)(F), 12 

U.S.C. 5323(a)(2)(F). 

53See, e.g., Dodd-Frank Act sections 112(a)(2)(D), 

(F), (I), (K), and (N), 12 U.S.C. 5322(a)(2)(D), (F), (I), 

(K), and (N). 

54See, e.g., Council 2022 Annual Report, 

available at https://home.treasury.gov/system/files/ 

261/FSOC2022AnnualReport.pdf. 

devastated the financial system. 

Potential risks to financial stability may 

often be addressed by existing 

regulators; however, if one or more 

nonbank financial companies, though 

their material financial distress or 

activities, could pose a threat to 

financial stability, Congress determined 

that designation of the relevant 

companies for Federal Reserve 

supervision and prudential standards is 

an appropriate response. 

Some commenters stated that the 

Proposed Guidance does not set forth 

with sufficient clarity the analyses the 

Council will conduct during the 

designation process or the prudential 

standards that will apply after 

designation. While the Council 

appreciates these comments, the Final 

Guidance does not address the 

substantive analytic factors to be used in 

designations because the Council has 

issued a separate document—the 

Analytic Framework—regarding its 

analytic approach for identifying and 

assessing potential risks to U.S. 

financial stability more broadly. 

Further, as noted above, Congress 

assigned responsibility to the Federal 

Reserve to determine the prudential 

standards that apply to a designated 

nonbank financial company, although 

the Council can recommend standards. 

Other commenters stated that the 

Council should make climate-related 

financial risks a factor in the 

designation analysis of a nonbank 

financial company that may be subject 

to physical or transition climate-related 

risks. The Council appreciates these 

comments and has published a number 

of analyses regarding the emerging and 

increasing risks that climate change 

poses to the financial system. However, 

the Council believes that potential risks 

related to climate change may be 

assessed under the vulnerabilities, 

sample metrics, and transmission 

channels in the Analytic Framework. 

For example, to the extent that climaterelated financial risks could result in 

defaults on a company’s outstanding 

obligations, those risks may be 

considered, in part, through the 

‘‘interconnections’’ vulnerability and 

the ‘‘exposures’’ transmission channel. 

Some commenters requested that the 

Council tailor the Final Guidance to one 

or more particular industries. As noted 

above, the Final Guidance does not set 

forth the substantive analyses the 

Council intends to apply in designation 

determinations. Instead, the Analytic 

Framework explains how the Council 

expects to consider any type of risk to 

financial stability, regardless of which 

of the Council’s authorities may be used 

to address the risk. This approach seeks 

to strengthen the Council’s ability to 

identify, assess, and respond to risks to 

U.S. financial stability, regardless of 

whether those risks originate from 

individual companies or widely 

conducted activities. The Council 

further notes that it expects to take into 

account relevant differences among 

various sectors, markets, or activities in 

the designation process, and to consult 

with a company’s existing primary 

financial regulator. For example, the 

Council would take into account the 

extent to which assets are managed 

rather than owned by the company.52

Finally, some commenters stated that 

entity-based designation is not suitable 

for their industry, including life 

insurers, property and casualty insurers, 

reinsurers, asset managers, nonbank 

mortgage lenders, nonbank mortgage 

servicers, mutual funds (including 

money market mutual funds), private 

funds, fintech companies (including 

certain payment providers), and issuers 

of asset-backed securities. These 

commenters indicated that the Council 

should exclude certain types of 

companies from potential review. As it 

did in the 2019 Interpretive Guidance, 

the Council declines to categorically 

exclude any particular financial sectors 

or types of nonbank financial companies 

from its assessment of potential threats 

to financial stability. The Council 

expects that any analysis of a nonbank 

financial company for potential 

designation will be tailored to reflect the 

unique attributes of the company and its 

existing regulatory framework, but 

assessing the suitability of designation 

of any class of nonbank financial 

companies would be premature. The 

substantive rigor under the Analytic 

Framework, the transparency under the 

Final Guidance, and the Council’s 

adherence to the statutory requirements 

for designations will provide nonbank 

financial companies under review for 

potential designation with ample 

opportunities to raise risk-related factors 

during the Council’s evaluation. 

E. Activities-Based Approach 

The Dodd-Frank Act gives the Council 

a range of authorities and broad 

discretion to determine how to respond 

to potential threats to U.S. financial 

stability, and the statute does not 

prioritize among the Council’s 

authorities. For example, pursuant to 

section 113 of the Dodd-Frank Act, the 

Council may determine that an 

individual nonbank financial company 

will be subject to supervision by the 

Federal Reserve and prudential 

standards if the Council determines that 

the company’s material financial 

distress or activities could pose a threat 

to financial stability. The Dodd-Frank 

Act also gives the Council various 

authorities to make nonbinding 

recommendations to regulators.53

The Council’s response to a particular 

risk to financial stability depends on the 

nature of the risk. For example, 

vulnerabilities originating from 

activities that are widely conducted in 

a particular sector or market may be 

well-suited for activity-based or 

industry-wide regulation. In contrast, in 

cases where the financial system relies 

on the ongoing financial activities of a 

small number of entities, such that the 

impairment of one of the entities could 

threaten financial stability, or where a 

particular financial company’s material 

financial distress or activities could 

pose a threat to financial stability, 

entity-based action may be appropriate. 

The Council’s history provides 

instructive examples of the Council’s 

use of different authorities and 

approaches for different types of risks. 

For example, the Council has taken an 

activities-based approach in 

recommending actions to address risks 

relating to crypto-assets, climate-related 

financial risks, and other topics. In 

2012, the Council used an activitiesbased approach in issuing for public 

comment proposed recommendations 

for money market mutual fund reforms. 

Further, all of the Council’s annual 

reports have identified and 

recommended actions regarding various 

risks to U.S. financial stability,54 many 

in the form of an activities-based 

approach. The Council has also used 

entity-specific approaches in 

designating eight financial market 

utilities in 2012 under Title VIII of the 

Dodd-Frank Act and in designating four 

nonbank financial companies in 2013 

and 2014 under section 113 of the 

Dodd-Frank Act. 

However, the statute does not 

contemplate that one of the Council’s 

authorities takes precedence over 

others, or that the Council must make 

recommendations to existing regulators 

before commencing a review of a 

company for potential designation. 

Financial crises have illustrated the 

importance of ensuring that the Council 

can exercise its authorities as needed. 

For example, the 2007–09 financial 

crisis showed that material financial 

distress at a small number of large, 


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55One commenter cited an estimate from two 

former Chairpersons of the Council and two former 

Chairs of the Federal Reserve Board that the 

nonbank financial company designation process 

under the 2019 Interpretive Guidance would take 

six years or more. 

56 Dodd-Frank Act section 113(a)(2)(H), 12 U.S.C. 

5323(a)(2)(H). 

interconnected, and highly leveraged 

nonbank financial companies could 

threaten the stability of the U.S. 

financial system. Many commenters 

cited the failure of American 

International Group (AIG), where 

regulators had not identified or 

addressed the risk the company 

ultimately posed to financial stability. 

In light of the experience during the 

financial crisis in 2007–09, the DoddFrank Act recognizes that relying on 

existing regulators is not sufficient in 

some circumstances. Congress did not 

structure the Dodd-Frank Act to 

deprioritize the Council’s nonbank 

financial company designation 

authority. 

Nonetheless, the 2019 Interpretive 

Guidance stated that the Council would 

identify, assess, and address potential 

risks and threats to U.S. financial 

stability through a process that began 

with what it called an ‘‘activities-based 

approach.’’ Under that guidance, the 

activities-based approach meant the 

Council would rely on existing 

regulators to address potential threats to 

financial stability before the Council 

could consider designating a nonbank 

financial company.55 The 2019 

Interpretive Guidance further generally 

limited the use of designations under 

section 113 of the Dodd-Frank Act to 

cases where a potential risk or threat 

could not be adequately addressed by 

existing regulators. The Council 

received many comments favoring the 

prioritization of an activities-based 

approach over entity-specific 

designation, and many other comments 

advocating for the removal of the 

prioritization. The Final Guidance does 

not include the statement that the 

Council will first rely on existing 

regulators to address risks to financial 

stability before considering a nonbank 

financial company for potential 

designation. 

The Council believes that rescinding 

the prioritization of an activities-based 

approach will better enable the Council 

to respond to threats to financial 

stability irrespective of their source. The 

Council agrees with the many 

commenters that stated that the Council 

should work closely with federal and 

state regulators. As discussed above and 

below, the Council engages extensively 

with federal and state financial 

regulatory agencies to identify, assess, 

and respond to risks to financial 

stability. The Council appreciates the 

expertise and experience, noted by 

many commenters, of primary financial 

regulators. The Council agrees with 

commenters that collaborating with 

existing regulators is critical. Under the 

Final Guidance, the Council will 

maintain its previous commitment to 

engaging extensively with existing 

regulators. 

Some commenters noted that other 

bodies, including the Financial Stability 

Board, have focused in recent years on 

an activities-based approach, and 

encouraged the Council to do the same. 

Some commenters also stated that an 

activities-based approach is the most 

effective means of addressing risks to 

the financial system. The Council 

believes that the availability of its full 

range of authorities is important to 

enable it to address the full range of 

potential risks to financial stability. In 

many respects, the Council agrees with 

reasons identified by commenters for 

supporting efforts by existing regulators 

to address potential risks to financial 

stability. For example, as commenters 

noted, in appropriate circumstances 

such actions can enable the mitigation 

of risks that arise from the activities of 

numerous financial companies in a 

particular sector or from financial 

products that are offered on a 

widespread basis. Other commenters 

stated that addressing risks through 

generally applicable regulatory 

requirements may increase fairness and 

reduce competitive disadvantages by 

promoting consistent treatment across 

firms. Some commenters stated that 

action by existing regulators may also be 

quicker than a Council designation 

process followed by the adoption of 

prudential standards by the Federal 

Reserve. The Council appreciates these 

points. 

Some commenters suggested that the 

prioritization of an activities-based 

approach is appropriate, in part, 

because the Council is not a primary 

financial regulator and should defer to 

the judgment of primary financial 

regulators. During any designation 

review, the Council will consider the 

‘‘degree to which the company is 

already regulated by 1 or more primary 

financial regulatory agencies,’’ 56 but the 

statute does not prioritize this factor 

among the list of required 

considerations. While the Council 

engages routinely with primary 

financial regulators, as discussed above, 

Congress gave the Council itself the 

responsibility to reach judgments under 

the standard set forth in section 113 of 

the Dodd-Frank Act regarding potential 

threats to financial stability. 

Other commenters highlighted the 

benefits of nonbank financial company 

designations compared to other ways to 

respond to a potential threat to financial 

stability. Many commenters pointed out 

that designation may be more 

appropriate when a threat to U.S. 

financial stability arises from the 

material financial distress or activities 

of a particular nonbank financial 

company, and that in the event of such 

a risk, a designation may be a more 

targeted solution that does not impact 

all firms in the same market. 

Designation may also be more suitable 

when a large, complex, interconnected 

nonbank financial company is subject to 

varying levels of regulation across 

financial markets and regulatory 

jurisdictions. As some commenters 

stated, the potential impact of a 

nonbank financial company’s material 

financial distress or activities on 

financial stability is frequently related 

to the interconnections and combination 

of financial risks across multiple 

business lines within a single company 

and the company’s existing regulation 

and risk-management practices. 

One commenter also noted more 

holistic benefits of nonbank financial 

company designations. Designation may 

be a more effective deterrent against 

companies’ actions that increase 

potential risks to financial stability 

because some companies may be able to 

avoid activities-based rules through 

regulatory arbitrage. Moreover, one 

commenter noted that designation, 

whose resulting regulatory regime 

includes resolution-planning 

requirements, supports the success of 

the Orderly Liquidation Authority 

under Title II of the Dodd-Frank Act, 

which is designed to limit the 

consequences of insolvencies when they 

do occur. Commenters also noted that 

the Council’s nonbank financial 

company designation process enables 

firms to respond quickly, and that the 

Council can reconsider a previous 

designation if there are changes that 

reduce the potential threat to financial 

stability. 

Some commenters asserted that the 

Proposed Guidance indicates that the 

Council intends to prioritize an entitybased approach. This is incorrect. The 

Council does not intend to favor any of 

its statutory authorities over others. The 

Proposed Guidance and the Final 

Guidance focus on the nonbank 

financial company designation authority 

simply because the sole purpose of the 

guidance is to establish the Council’s 

process for designating nonbank 

financial companies. Other Council 


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57The 2019 Interpretive Guidance further 

provided, ‘‘If such benefits or costs cannot be 

quantified in this manner, the Council will explain 

why such benefits or costs could not be quantified.’’ 

84 FR at 71,765 (Dec. 30, 2019). 

58 Dodd-Frank Act sections 113(a)(1) (with respect 

to U.S. nonbank financial companies) and (b)(1) 

(with respect to foreign nonbank financial 

companies), 12 U.S.C. 5323(a)(1) and (b)(1). 

59 Dodd-Frank Act section 113(a)(2), 12 U.S.C. 

5323(a)(2). 

60 Id. 

61See, e.g., Dodd-Frank Act sections 

1013(d)(7)(A)(i)(IV) and 1022(b)(2)(A)(i), 12 U.S.C. 

5493(d)(7)(A)(i)(IV) and 5512(b)(2)(A)(i). 

62See Dodd-Frank Act section 113(a)(2)(K), 12 

U.S.C. 5323(a)(2)(K). 

63This interpretation is also consistent with how 

the word ‘‘risk’’ is used in surrounding provisions 

of the Dodd-Frank Act. See, e.g., Dodd-Frank Act 

sections 112, 115, 120, 121, and 123, 12 U.S.C. 

5322, 5325, 5330, 5331, and 5333. 

64Under section 165 of the Dodd-Frank Act, the 

Federal Reserve has authority to establish 

prudential standards applicable to designated 

nonbank financial companies, and the Council may 

recommend standards under section 115 of the 

Dodd-Frank Act. 12 U.S.C. 5325 and 5365. 

65While, for the reasons described in this section, 

the Council does not expect to consider any 

anticipated costs of designation, under the Final 

Guidance a company under review may submit to 

the Council any information the company deems 

relevant to the Council’s evaluation under the 

statutory standard for designation. Consistent with 

section 113(a)(2)(K) of the Dodd-Frank Act, 12 

U.S.C. 5323(a)(2)(K), the Final Guidance does not 

preclude the Council from considering any riskrelated factors, including factors that the Council 

later determines to be risk-related, if the Council 

deems their consideration appropriate. 

materials, including the Analytic 

Framework, describe how the Council 

may apply other authorities. 

F. Cost-Benefit Analysis 

Although the Dodd-Frank Act does 

not require a cost-benefit analysis prior 

to the designation of a nonbank 

financial company, the 2019 

Interpretive Guidance stated that the 

Council would perform a quantitative 

cost-benefit analysis, whenever 

possible,57 as a prerequisite to 

designation. Under the Proposed 

Guidance, the Council would not 

conduct a cost-benefit analysis prior to 

a designation of a nonbank financial 

company. The Council received and 

considered numerous comments both 

favoring retention of cost-benefit 

analysis as a step in the designation 

process and advocating its removal. As 

described below, the Council does not 

believe that a cost-benefit analysis of 

individual designation determinations 

is legally required or reasonably 

estimable, useful, or appropriate in this 

context. Therefore, the Final Guidance 

does not contemplate the Council 

conducting a cost-benefit analysis prior 

to a nonbank financial company 

designation. 

Section 113 of the Dodd-Frank Act 

sets forth the standard for designation, 

which directs the Council to determine 

whether ‘‘material financial distress at 

[a] nonbank financial company, or the 

nature, scope, size, scale, concentration, 

interconnectedness, or mix of the 

activities of [a] nonbank financial 

company, could pose a threat to the 

financial stability of the United 

States.’’ 58 The Dodd-Frank Act also sets 

forth the list of considerations ‘‘the 

Council shall consider’’ ‘‘[i]n making a 

determination’’ to designate a nonbank 

financial company under section 113.59

Subsection 113(a)(2) lists 10 explicit 

and mandatory considerations— 

including the company’s leverage, 

transactions with other financial 

companies, assets under management, 

and existing regulation—as well as a 

permissive eleventh consideration: ‘‘any 

other risk-related factors that the 

Council deems appropriate.’’ 60

The designation standard and the 

statutory considerations are focused on 

the threat a nonbank financial 

company’s material financial distress or 

activities could pose to U.S. financial 

stability. Section 113 establishes a 

structure for the Council’s evaluation of 

a company and the risks it could pose 

to financial stability. This statutory 

structure does not contain, nor does it 

require the Council to perform, a costbenefit analysis. The statute instructs 

the Council to focus on potential threats 

to financial stability, not the costs of 

designation to the company under 

review or to others. The potential costs 

and benefits of designation depend, 

among other things, on financial 

conditions, market behaviors, and the 

risk and magnitude of potential future 

financial crises that are inestimable with 

reasonable precision. Congress 

determined that when a nonbank 

financial company meets the statutory 

standard, designation is justified. The 

Council declines to second-guess that 

legislative judgment. 

Some commenters noted that neither 

the costs nor the benefits of designation 

appear in the considerations listed in 

section 113 of the Dodd-Frank Act, and 

that they are not similar to any of the 

listed considerations. The absence of a 

cost-benefit analysis requirement in 

section 113 contrasts with other 

provisions of the Dodd-Frank Act that 

do require cost-benefit analysis.61 As 

several commenters noted, this contrast 

demonstrates that Congress did not 

intend for the Council to perform a costbenefit analysis when making 

determinations under section 113. 

Further, some commenters noted that 

while Congress granted the Council 

discretion to consider other factors it 

‘‘deems appropriate,’’ these too must be 

‘‘risk-related.’’ 62 Thus, under the text of 

section 113 of the Dodd-Frank Act, 

whether cost-benefit analysis is a 

prerequisite to designation depends on 

two inquiries: (1) is cost-benefit analysis 

a ‘‘risk-related factor,’’ and (2) does ‘‘the 

Council deem[ ] appropriate’’ the 

consideration of costs and benefits in a 

designation? The answer to both is no. 

Having considered the public 

comments on the Proposed Guidance, 

the Council does not believe that costbenefit analysis, or its results or 

components, are ‘‘risk-related factors,’’ 

and does not expect to consider them. 

The Council believes the statutory 

reference to ‘‘any other risk-related 

factors’’ should be interpreted, 

consistent with the statutory standard 

for designation and the expressly 

enumerated considerations, as meaning 

a factor related to the risk to U.S. 

financial stability posed by a nonbank 

financial company’s material financial 

distress or activities.63 Cost-benefit 

analysis is unlike any of the 10 explicit 

considerations the Council must take 

into account prior to designating a 

nonbank financial company. Each of the 

mandatory considerations—for example, 

a company’s leverage, off-balance-sheet 

exposures, and importance as a source 

of credit—all directly inform the threat 

a company’s material financial distress 

or activities could pose to U.S. financial 

stability. Analysis of the costs and 

benefits of designation does not have 

that character. The Council 

acknowledges that there would be costs 

to a designated nonbank financial 

company associated with the Federal 

Reserve’s prudential standards and 

supervision, but the Council does not 

believe that those costs would be ‘‘riskrelated factors.’’ 64

Some commenters contended that the 

costs of designation could be so great as 

to increase the threat to financial 

stability that a company’s material 

financial distress or activities could 

pose. Thus, these commenters stated, 

the costs of designation should also be 

considered a risk-related factor. 

However, the Council does not believe 

that commenters on the Proposed 

Guidance identified a credible scenario 

in which the costs of designation could 

be relevant to the assessment of the 

threat a company’s material financial 

distress or activities could pose to 

financial stability.65 That is, while 

commenters noted that costs of 

designation hypothetically could affect 

a company’s financial position, they did 

not convincingly demonstrate that such 

costs could affect the threat to financial 

stability posed by the company’s 


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66See also Dodd-Frank Act section 112(a)(2)(H), 

12 U.S.C. 5322(a)(2)(H) (providing that ‘‘[t]he 

Council shall . . . require supervision by the Board 

of Governors for nonbank financial companies that 

may pose risks to the financial stability of the 

United States in the event of their material financial 

distress or failure, or because of their activities 

pursuant to section 113’’ (emphasis added)). 

67One study cited by a commenter estimated the 

costs of a recent financial crisis to exceed an entire 

year of GDP. See Josh Bivens, ‘‘Why is recovery 

taking so long—and who’s to blame?,’’ Economic 

Policy Institute (Aug. 11, 2016), https://

www.epi.org/publication/why-is-recovery-taking-solong-and-who-is-to-blame (estimating the 

cumulative output gap in the economy at 133% of 

GDP). Other commenters cited a study that 

describes the large range of financial-crisis cost 

estimates, often differing by trillions of dollars, and 

notes the unsuitability of cost-benefit analysis for 

regulation aimed at improving financial stability. 

See John Coates IV, ‘‘Cost-Benefit Analysis of 

Financial Regulation: Case Studies and 

Implications,’’ The Yale Law Journal (Jan.-Feb. 

2015), https://www.yalelawjournal.org/article/costbenefit-analysis-of-financial-regulation. 

68One commenter cited an estimate that AIG 

would have faced annual compliance costs between 

$100 million and $150 million related to its 

previous designation. The Council takes no position 

on the accuracy of this estimate, but notes that it 

is orders of magnitude smaller than the likely costs 

of a financial crisis. 

69 177 F. Supp. 3d 219, 239–42 (D.D.C. 2016). 

70 576 U.S. 743 (2015). 

71One commenter also contended that a 

statement in the Proposed Guidance acknowledging 

that the guidance was subject to the procedures 

described in Executive Order 12866 (E.O. 12866), 

which generally directs agencies to consider the 

relevant costs and benefits of ‘‘regulations’’ and 

‘‘regulatory actions,’’ undermines the Council’s 

view that cost-benefit analysis is not a requirement 

of the designation process. However, E.O. 12866 

defines ‘‘regulation’’ to mean ‘‘an agency statement 

of general applicability and future effect, which the 

agency intends to have the force and effect of law, 

that is designed to implement, interpret, or 

prescribe law or policy or to describe the procedure 

or practice requirements of an agency,’’ and defines 

‘‘regulatory action’’ as ‘‘any substantive action by an 

agency . . . that promulgates or is expected to lead 

to the promulgation of a final rule or regulation.’’ 

E.O. 12866 sections 3(e) and (f). The Council’s 

designation determinations under section 113 of the 

Dodd-Frank Act are neither ‘‘regulations’’ nor 

‘‘regulatory actions.’’ Determinations under section 

113 are thus not subject to E.O. 12866. 

72 MetLife v. Financial Stability Oversight 

Council, Order, Dkt. No. 129,15–cv–45 (D.D.C. Feb. 

28, 2018) (declining to vacate portion of opinion 

rescinding MetLife’s designation); see also Pears v. 

Mobile Cnty., 645 F. Supp. 2d 1062, 1076 (S.D. Ala. 

2009) (‘‘It is black-letter law that the decision of one 

federal district court is not binding on another 

federal district court, or even on the same judge in 

another case.’’) (collecting cases). The MetLife 

decision has limited significance even for MetLife 

itself. In the final settlement agreement between the 

Council and MetLife in 2018, the Council 

maintained that its designation of MetLife complied 

with applicable law, and MetLife expressly waived 

any right to argue that the cost-benefit portion of 

the district court’s opinion had any preclusive 

effect in any future proceeding before the Council 

or in any subsequent litigation. 

material financial distress, were it to 

occur, or activities. Moreover, the 

purpose of the prudential standards and 

Federal Reserve supervision applicable 

to a designated nonbank financial 

company is to mitigate the threat to 

financial stability that the company’s 

material financial distress or activities 

could pose. For example, even if they 

were costly to implement, risk-based 

capital requirements, leverage limits, or 

liquidity requirements reduce risks 

posed by companies to the financial 

system. Notwithstanding the potential 

costs of a Council designation, Congress 

set out a process by which companies 

should be evaluated and, if they meet 

the statutory standard, subject to 

prudential standards and Federal 

Reserve supervision. 

Other commenters contended that 

costs accruing to the market more 

generally (e.g., potential competitive 

harms) or the results of a cost-benefit 

analysis assessing the effect of 

designation on the broader economy 

could be ‘‘risk-related factors.’’ 

However, the standard Congress chose 

for nonbank financial company 

designations indicates that such costs 

and cost-benefit analysis are not ‘‘riskrelated factors.’’ The Council does not 

believe that cost-benefit analysis 

indicates whether a company’s material 

financial distress or activities ‘‘could 

pose a threat to the financial stability of 

the United States,’’ the standard for 

designation under section 113. As noted 

above, in adopting this statutory 

standard, Congress determined that if a 

company meets the standard, based on 

the considerations Congress identified, 

the designation is justified.66

Even if the cost of designation or the 

results of cost-benefit analysis were 

‘‘risk-related factors,’’ the Council does 

not deem appropriate their 

consideration as a prerequisite to 

designation. A cost-benefit analysis 

aimed at assessing the incremental costs 

resulting from a designation and the 

potential benefits from mitigating the 

threat a company’s material financial 

distress or activities could pose to 

financial stability would be impossible 

to perform with reasonable precision. 

This is in part because, as some 

commenters noted, it is not feasible to 

estimate with any certainty the 

likelihood, magnitude, or timing of a 

future financial crisis. The costs to 

financial stability arising from the 

material financial distress or activities 

of a nonbank financial company will 

depend on the state of the economy, the 

financial system, and innumerable other 

factors at the time. The costs of any 

particular future financial crisis, and 

thus the benefits of its prevention or 

mitigation through designation or other 

measures, cannot be predicted. Even 

estimates of the costs of past crises 

(which approximate the benefits of their 

avoidance), in terms of reductions in 

gross domestic product (GDP), greater 

government expenses, increases in 

unemployment, or other factors, vary 

widely on the order of trillions of 

dollars.67

The costs of designation to the 

designated company, the market, or 

others are also likely to evade useful 

estimation. These costs will depend 

critically on the applicable regulatory 

regime, which the Dodd-Frank Act 

directs the Federal Reserve, not the 

Council, to adopt.68 Generally, specific 

regulatory requirements for previously 

designated nonbank financial 

companies have been determined after 

the designation, in order to enable the 

requirements to be appropriately 

tailored to risks posed by the company. 

Moreover, those requirements, along 

with the company’s behavior in 

response to them and relevant market 

conditions, may vary over time. As 

such, evaluating the potential costs and 

benefits of a designation with 

reasonable specificity is not possible 

before a designation, and it is unlikely 

that performing a cost-benefit analysis 

for a nonbank financial company 

designation would yield a useful 

assessment. As noted by commenters, 

the infrequency and heterogeneity of 

past financial crises, combined with the 

unpredictable nature of financial 

markets and uncertain future evolution 

of financial firms and activities, do not 

provide a reliable basis for conducting 

an informative cost-benefit analysis. A 

cost-benefit analysis in this context is 

likely to produce results that are highly 

sensitive to discretionary assumptions 

and thus not helpful to decisionmaking. Accordingly, it is not surprising 

that Congress declined to prescribe a 

cost-benefit analysis as a prerequisite to 

designation. 

Some commenters also asserted that a 

cost-benefit analysis before a 

designation is legally required by the 

district court’s decision in MetLife, Inc. 

v. Financial Stability Oversight Council 

(MetLife),69 the Supreme Court’s 

decision in Michigan v. EPA,70 or the 

APA.71 The Council disagrees. 

The district court in MetLife 

rescinded one of the Council’s previous 

designations under section 113 of the 

Dodd-Frank Act because, among other 

reasons, the Council did not consider 

the costs of the designation. However, as 

the MetLife court noted: ‘‘This Court is 

one of 94 United States District Courts, 

comprising several hundred judges, and 

its Opinion is not binding on others; the 

Opinion stands on its own persuasive 

value, to the extent it has any.’’ 72

Furthermore, the MetLife court’s 


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73See MetLife, 177 F. Supp. 3d 219, 239–42 

(D.D.C. 2016) (discussing company’s argument that 

‘‘imposing billions of dollars in cost could actually 

make MetLife more vulnerable to distress’’ and 

citing Council’s ‘‘own Guidance’’ as obligating the 

Council to consider associated ‘‘risk’’). 

74See Michigan v. EPA, 576 U.S. 743, 747, 751 

(2015); 42 U.S.C. 7412. 

75 Id. at 759. 

76 Dodd-Frank Act section 113(a)(2)(K), 12 U.S.C. 

5323(a)(2)(K); see also Webster v. Doe, 486 U.S. 592, 

600 (1988) (statutory grant of agency authority to 

‘‘deem’’ actions ‘‘necessary or advisable’’ ‘‘fairly 

exudes deference to [the agency],’’ ‘‘appears to . . . 

foreclose’’ judicial review, and ‘‘strongly suggests 

that [the statute’s] implementation ‘was committed 

to agency discretion by law.’ ’’). 

77See Michigan v. EPA, 576 U.S. 743, 747, 751 

(2015). 

78 Id. at 752. 79 Murray Energy Corp. v. EPA, 936 F.3d 597, 622 

(D.C. Cir. 2019). 80Perez v. Mortg. Bankers Ass’n, 575 U.S. 92, 100, 

102 (2015) (‘‘Beyond the APA’s minimum 

requirements, courts lack authority ‘to impose upon 

an agency its own notion of which procedures are 

‘best’ or most likely to further some vague, 

undefined public good.’’’) (quoting Vermont Yankee 

Nuclear Power Corp. v. Nat. Res. Def. Council, Inc., 

435 U.S. 519, 549 (1978)). 

81 Id. at 102. 

82 Dodd-Frank Act section 165(a)(1), 12 U.S.C. 

5365(a)(1). 

83 Dodd-Frank Act section 165(a)(2)(A), 12 U.S.C. 

5365(a)(2)(A). 

84 84 FR at 71,766–67 (Dec. 30, 2019). 

85The Council for many years consistently 

expressed the view that neither the Dodd-Frank Act 

nor the 2012 Interpretive Guidance contemplated 

the consideration of the likelihood of a nonbank 

financial company’s material financial distress. The 

district court in MetLife held that, notwithstanding 

the Council’s arguments to the contrary, the 2012 

Interpretive Guidance required an assessment of the 

likelihood of a company’s material financial 

distress. The 2019 Interpretive Guidance altered the 

Council’s approach by stating that the Council 

would consider this factor. The Final Guidance 

conforms to the Council’s previous understanding 

that this factor should not be taken into account. To 

the extent that the 2012 Interpretive Guidance 

could reasonably be interpreted as committing the 

Council to consider this factor, the Council is now 

Continued 

holding appears to rely, in part, on its 

assessment that a company’s likelihood 

of material financial distress was a 

required consideration under the 

Council’s guidance in effect at that 

time.73 As discussed below, the Final 

Guidance makes clear that the Council 

does not expect to consider the 

likelihood of a nonbank financial 

company’s material financial distress; as 

a result, to the extent MetLife’s 

reasoning relied on that requirement, it 

would not apply. In addition, while the 

court in MetLife viewed costs as a riskrelated factor, it failed to take into 

account that the Council did not 

‘‘deem’’ the cost of designation an 

appropriate risk-related factor to 

consider. Consistent with section 

113(a)(2)(K) of the Dodd-Frank Act, 

because the Council did not deem cost 

appropriate to consider, its 

consideration was not required for the 

statutory reasons described above. 

Other commenters stated that 

Michigan v. EPA requires the Council to 

perform cost-benefit analyses of its 

designations. In Michigan, the Supreme 

Court considered whether cost-benefit 

analysis was required by a provision of 

the Clean Air Act directing the EPA to 

regulate certain hazardous emissions 

only if EPA found that ‘‘such regulation 

is appropriate and necessary.’’ 74 The 

Court held that the requirement to 

determine that the regulation was 

‘‘‘appropriate and necessary’ requires at 

least some attention to cost.’’ Notably, 

the Court stated that it was not 

concluding the statute required EPA ‘‘to 

conduct a formal cost-benefit 

analysis.’’ 75

While section 113 of the Dodd-Frank 

Act also uses the word ‘‘appropriate,’’ 

the context is entirely different. First, 

the phrase ‘‘any other risk-related 

factors that the Council deems 

appropriate’’ is permissive, not 

mandatory.76 Unlike the EPA, which 

was directed to act only when it found 

that regulation was ‘‘appropriate and 

necessary,’’ 77 under the Dodd-Frank 

Act, the Council has clear statutory 

authority to choose which ‘‘other riskrelated factors’’ to consider by deeming 

them appropriate, or not. Second, 

section 113’s permissive reference to 

‘‘appropriate’’ is limited to ‘‘risk-related 

factors,’’ rather than other 

considerations that could conceivably 

influence agency decision-making, such 

as cost-benefit analysis. This 

interpretation of section 113 is 

consistent with the Supreme Court’s 

decision in Michigan v. EPA, in which 

it noted that ‘‘[t]here are undoubtedly 

settings in which the phrase 

‘appropriate and necessary’ does not 

encompass cost.’’ 78 Similarly, and more 

recently, the Court of Appeals for the 

D.C. Circuit has rejected the claim that 

the word ‘‘appropriate’’ necessarily 

requires consideration of economic 

costs, in part, because the Supreme 

Court in Michigan v. EPA ‘‘was careful 

to emphasize that its reading of 

‘appropriate’ was dependent on the 

statutory context . . . .’’ 79

Several commenters argued that the 

APA’s general prohibition on arbitrary 

and capricious agency action could 

require the Council to perform costbenefit analysis, regardless of the 

standard and requirements set forth in 

the Dodd-Frank Act. However, the APA 

contains no such mandate, and the 

Supreme Court has long held that the 

APA’s text sets forth the ‘‘maximum 

procedural requirements’’ courts may 

impose.80 Reading additional 

requirements into the APA ‘‘would 

violate the very basic tenet of 

administrative law that agencies should 

be free to fashion their own rules of 

procedure.’’ 81

A number of commenters stated that 

cost-benefit analysis is generally a 

helpful agency practice because it 

disciplines agency decision-making and 

leads to better policy outcomes. The 

Council takes no view on these 

propositions in general, but as discussed 

above, does not believe cost-benefit 

analysis would generally be appropriate 

in the context of nonbank financial 

company designations such that it 

should be a prerequisite to designation. 

Under the Analytic Framework, the 

Council anticipates that its analyses, 

including in the context of a designation 

under section 113 of the Dodd-Frank 

Act, will be rigorous, data-driven, and 

transparent. Other commenters 

contended that cost-benefit analysis is 

necessary to ensure that designation 

will promote U.S. financial stability or 

generally do more good than harm. The 

Council disagrees. Under the statutory 

standard in section 113, the Council has 

authority to designate a nonbank 

financial company only if the 

company’s material financial distress or 

activities could pose a threat to U.S. 

financial stability. Thus, the promotion 

of U.S. financial stability is already 

embedded in the designation standard. 

In addition, these commenters did not 

acknowledge the fact that the prudential 

standards will be developed by the 

Federal Reserve, and some presume it 

would regulate nonbank financial 

companies in a way that actually 

increases risks to financial stability. 

However, under its statutory mandate, 

the Federal Reserve would seek to 

establish prudential standards that 

would ‘‘prevent or mitigate risks to the 

financial stability of the United 

States.’’ 82 The Federal Reserve will also 

take into consideration companies’ 

‘‘capital structure, riskiness, complexity, 

financial activities (including the 

financial activities of their subsidiaries), 

size, and any other risk-related factors 

that the Board of Governors deems 

appropriate.’’ 83

G. Likelihood of Material Financial 

Distress 

As part of the evaluation of a 

company being considered for 

designation, the 2019 Interpretive 

Guidance provided that ‘‘the Council 

will assess the likelihood of the 

company’s material financial 

distress.’’ 84 The Final Guidance 

removes this ‘‘likelihood assessment’’ 

from the Council’s designation 

procedures.85


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clarifying that it does not interpret the Dodd-Frank 

Act, the Final Guidance, or the Analytic Framework 

to contemplate an assessment of the likelihood of 

a company’s material financial distress. 

86 Dodd-Frank Act section 113(a)(1), 12 U.S.C. 

5323(a)(1). See also Dodd-Frank Act section 

113(b)(1) (with respect to foreign nonbank financial 

companies), 12 U.S.C. 5323(b)(1). 

87Some commenters suggested that the Council 

should define ‘‘material financial distress.’’ Both 

the Proposed Guidance and Final Guidance provide 

that the Council intends to interpret the term 

‘‘material financial distress’’ as a nonbank financial 

company being in imminent danger of insolvency 

or defaulting on its financial obligations. This 

interpretation is unchanged from both the 2012 

Interpretive Guidance and the 2019 Interpretive 

Guidance. 

88 Dodd-Frank Act section 112(a)(2)(H), 12 U.S.C. 

5322(a)(2)(H). 

89 Dodd-Frank Act section 113(a)(1), 12 U.S.C. 

5323(a)(1). See also Dodd-Frank Act section 

113(b)(1) (with respect to foreign nonbank financial 

companies), 12 U.S.C. 5323(b)(1). 

90See 84 FR at 71,754 and 71,767 (Dec. 30, 2019). 

91See Dodd-Frank Act section 112(a)(1)(C), 12 

U.S.C. 5322(a)(1)(C). 

The Council believes that assessing 

the likelihood of a company’s material 

financial distress (referred to by some 

commenters as a company’s 

‘‘vulnerability’’ to financial distress) is 

neither required nor appropriate. As 

described below, such an assessment 

does not appear in relevant provisions 

of the Dodd-Frank Act, fits poorly with 

the statutory standard for designation, 

compromises the preventative nature of 

the designation authority, and could 

cause the very financial instability that 

a designation is intended to avert. 

Further, history provides myriad 

examples of the futility of predicting, 

years in advance, the likelihood of any 

specific financial company’s material 

financial distress. Accordingly, the 

Council unequivocally declines to 

include any requirement to assess a 

company’s likelihood of, or 

vulnerability to, material financial 

distress before a designation under 

section 113 of the Dodd-Frank Act. 

Congress authorized the Council to 

designate a company under section 113 

of the Dodd-Frank Act if it ‘‘determines 

that material financial distress at the 

U.S. nonbank financial company . . . 

could pose a threat to the financial 

stability of the United States.’’ 86 This 

standard (one of two statutory 

designation standards under section 

113) instructs the Council to determine 

whether a company’s material financial 

distress could pose a threat to financial 

stability—not to assess how likely such 

distress is to occur. Thus, under section 

113, the Council presupposes a 

company’s material financial distress, 

and then evaluates what consequences 

for U.S. financial stability could 

follow.87 If those consequences ‘‘could 

pose a threat’’ to U.S. financial stability, 

designation is warranted. The first 

determination standard, thus, does not 

require or contemplate an assessment of 

how likely a company is to experience 

material financial distress. Put 

differently, the assessment under the 

first designation standard is binary. If a 

company’s material financial distress, 

were it to occur, could pose a threat to 

financial stability, then the company 

meets the standard for designation; if 

not, the first standard for designation is 

not met. The likelihood of the 

company’s material financial distress is 

not relevant to the statutory standard for 

designation. 

Moreover, none of the 10 statutory 

considerations the Council must 

consider in making a determination 

under section 113 includes such a 

likelihood assessment. As some 

commenters pointed out, the Council’s 

designation determinations take into 

account these statutory considerations, 

not the probability of material financial 

distress. Further, the 10 statutory 

considerations inform the Council’s 

determination whether the statutory 

standard has been met; they do not alter 

the statutory standard. 

Some commenters contended that the 

10 considerations in section 113 of the 

Dodd-Frank Act imply that the Council 

must consider a nonbank financial 

company’s likelihood of material 

financial distress. As noted above, the 

10 considerations do not contain any 

language relating to such a likelihood 

assessment. Moreover, reading such a 

requirement into the statute would 

conflict, in different ways, with each of 

the two alternative statutory standards 

for designation. As noted above, the first 

designation standard turns on whether a 

company’s material financial distress 

could pose a threat to financial stability, 

not how likely such distress is to occur. 

Section 112 of the Dodd-Frank Act 

underscores that the Council’s duty is to 

designate ‘‘nonbank financial 

companies that may pose risks to the 

financial stability of the United States in 

the event of their material financial 

distress or failure.’’ 88 By assigning the 

duty to designate nonbank financial 

companies that may pose risks ‘‘in the 

event’’ of their material financial 

distress or failure, section 112 

emphasizes that the Council takes 

material financial distress or failure as 

a given and assesses what risks could 

flow from it. 

In contrast, the second designation 

standard under section 113 provides for 

designation of a company if the Council 

determines that ‘‘the nature, scope, size, 

scale, concentration, 

interconnectedness, or mix of the 

activities of the U.S. nonbank financial 

company, could pose a threat to the 

financial stability of the United 

States.’’ 89 This second standard does 

not take into account or depend on the 

effects of a company’s material financial 

distress, much less an assessment of its 

likelihood. For that reason, the 2019 

Interpretive Guidance specified that the 

Council would undertake a likelihood 

assessment only under the first 

designation standard—not when the 

Council considers a company under the 

second designation standard.90 But the 

10 statutory considerations apply to the 

second designation standard as well as 

the first designation standard. 

Therefore, to interpret the 10 statutory 

considerations as requiring the Council 

to assess a company’s likelihood of 

material financial distress would 

contradict the plain meaning of section 

113 by collapsing the two statutory 

designation standards—the second of 

which is not related to a company’s 

material financial distress—into one. 

A number of commenters supported 

the Council’s interpretation as 

proposed. Some commenters stated that 

proceeding with a designation only after 

a determination that the company’s 

material financial distress is likely 

would alter the statutory standard— 

authorizing designation only when a 

company’s material financial distress 

‘‘does threaten’’ financial stability, 

rather than when it ‘‘could pose a 

threat’’ to financial stability. 

Further, the designation authority is 

preventative and is meant to ‘‘respond 

to emerging threats to the stability of the 

United States financial system,’’ 

consistent with the Council’s purpose.91

As some commenters underscored, 

permitting designation to occur only 

when the Council determines that a 

company is likely to fail, or has a 

reasonable or foreseeable likelihood of 

failure, would be damaging to financial 

stability. Waiting to act until there is an 

estimable likelihood of a company’s 

failure would negate the purpose of the 

Council’s designation authority, which 

is to mitigate risks before they actually 

threaten financial stability. The 

designation process under the Final 

Guidance will be a time-intensive 

exercise, and even once a company is 

designated, the Federal Reserve may 

then need to develop and implement 

prudential standards for the company. 

Such prudential standards, which may 

include capital and liquidity 

requirements, risk-management 

standards, and the development of 

resolution plans, are intended to 

prevent or mitigate risks to financial 


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92Financial Crisis Inquiry Commission, The 

Financial Crisis Inquiry Report at 324 (2011), 

available at https://www.govinfo.gov/content/pkg/ 

GPO-FCIC/pdf/GPO-FCIC.pdf. 

93 Id. 

94The more recent failures of Silicon Valley Bank 

and Signature Bank in March 2023 further 

underscore how quickly and unexpectedly a 

financial company can become insolvent. 

95While a likelihood assessment would 

presumably not be treated differently than other 

elements of the designation process with respect to 

the Council’s confidentiality procedures, a 

company under consideration for designation may 

publicly disclose that it is under review, either 

voluntarily or pursuant to otherwise applicable 

disclosure requirements. Further, under the Final 

Guidance the Council will publicly announce all 

Final Determinations. 

96Expected default frequencies (EDF) from 

Moody’s Credit Edge and Kamakura default 

probability (KDP) are two off-the-shelf metrics of 

the likelihood of default. During the 2007–09 

financial crisis, both metrics provided little lead 

time ahead of material financial distress. EDFs rose 

above 5 percent for Fannie Mae and Freddie Mac 

in February 2008, about seven months before they 

were put into conservatorship. Lehman Brothers’ 

EDF rose above 5 percent in June 2008, roughly two 

months before its bankruptcy. AIG’s EDF remained 

below 5 percent until the day the Federal Reserve 

stepped in to rescue the firm. Similar patterns were 

observed at commercial banks. As summarized by 

the Federal Deposit Insurance Corporation (FDIC), 

‘‘Throughout 2006, only about one-half of 1 percent 

of banks were on the problem list, the lowest 

percentage for any year for which these data are 

available (1980–2017), suggesting, incorrectly as it 

turned out, that the risk profile of the banking 

industry was at a historic low.’’ FDIC, Crisis and 

Response: An FDIC History, 2008–2013, at 106 

(2017). 

97Operational risks associated with inadequate or 

failed internal processes, people, and systems, or 

from external events, are inherent in most financial 

company products, activities, processes, and 

systems. An operational failure could result in 

material financial distress at a company if the 

failure impedes the company’s ability to provide 

key products or services. 

stability. For these tools to be most 

effective, they must be in place well 

before material financial distress 

appears on the horizon. 

Some commenters argued that a 

likelihood assessment will help the 

Council identify which companies are 

suitable for designation. But there are 

good reasons that Congress chose not to 

require the Council to consider the 

likelihood of a nonbank financial 

company’s material financial distress, 

and the Council does not believe it 

would be a useful consideration. As 

other commenters noted, companies 

that seem unlikely to experience 

financial distress may nonetheless 

experience material financial distress 

and rapidly threaten financial stability. 

A financial company can go from 

seemingly healthy to in danger of 

imminent collapse in a matter of 

months, weeks, or even days. For 

example, on September 10, 2008, 

Lehman Brothers reported shareholder 

equity—which is a measure of 

solvency—of $28 billion as of the end of 

August.92 Two days later, on September 

12, 2008, ‘‘experts from the country’s 

biggest commercial investment banks 

. . . could not agree whether or not’’ 

Lehman Brothers was solvent.93 The 

next business day, Monday, September 

15, 2008, Lehman Brothers declared 

bankruptcy. The collapse of Long-Term 

Capital Management in 1998, which one 

commenter attributed to significant 

leverage and a lack of regulation, was 

similarly rapid.94 For designation to 

strengthen the financial system, it must 

be deployed early enough that 

companies have time to take actions to 

bolster their safety and soundness, 

which in turn supports financial 

stability—something that can take 

several years. Several commenters noted 

that even without the undue hurdles to 

designation imposed by the 2019 

Interpretive Guidance, the designation 

process will likely remain lengthy, and 

stated that it is unrealistic to expect the 

Council to estimate the likelihood of a 

company’s material financial distress 

potentially years in advance. The 

Council agrees. 

Finally, if the Council can only 

designate a company by taking into 

account the likelihood of the company’s 

material financial distress, public 

awareness of a designation (or its mere 

possibility) could create a perception 

that the Council views the company as 

relatively likely to fail, causing a run on 

the company by its creditors and 

counterparties.95 This is an important 

reason why bank supervisory ratings are 

confidential, in acknowledgement of the 

risk that the disclosure of material 

issues at a company could trigger a run 

on the company. Thus, a designation 

that includes an assessment of the 

likelihood of material financial distress 

at the company could accelerate the 

company’s demise and thereby threaten 

financial stability. 

Some commenters interpreted a 

discussion of this issue in the preamble 

to the Proposed Guidance as indicating 

that designation under any procedures 

could cause a run on the nonbank 

financial company under consideration 

or otherwise give rise to material 

financial distress or financial instability. 

Some suggested that the Council should 

always consider the potential for 

designation itself to lead to material 

financial distress at the company. That 

is not the Council’s view. Rather, the 

Council believes that its evaluation of a 

company’s likelihood of material 

financial distress, or determination 

regarding the likelihood of a company’s 

material financial distress as part of a 

designation, could trigger a run on the 

company. As evidenced by the four 

previous examples of the Council’s use 

of the nonbank financial company 

designation authority, designation is 

unlikely to have that effect in the 

absence of a likelihood assessment; 

instead, designation leads to the 

establishment of prudential 

requirements and supervision by the 

Federal Reserve, which serve to mitigate 

the risks arising from material financial 

distress at the designated company. 

Some commenters contended that the 

Council must assess a company’s 

likelihood of material financial distress 

because a company with no likelihood 

of distress could not possibly ‘‘pose a 

threat’’ to financial stability. These 

commenters misread the first 

designation standard. As noted above, 

that standard presupposes material 

financial distress at the company under 

consideration. Congress instructed the 

Council to take material financial 

distress as a given and assess the 

consequences. That a company might 

have a low likelihood of material 

financial distress does not change the 

inquiry under the statutory standard. 

Furthermore, the contention that a 

likelihood assessment is necessary 

because some companies are immune to 

material financial distress rests on a 

factual assumption the Council rejects. 

As discussed above, and as some 

commenters noted, there is little ability 

to predict, years in advance, the 

likelihood of any specific financial 

company’s material financial distress, 

and history has revealed that even 

financial companies viewed as strong 

and stable can rapidly weaken and 

fail.96 Moreover, material financial 

distress may arise unpredictably from 

shocks generated outside of the 

financial system. For example, even 

companies with excellent financial risk 

management may experience material 

financial distress as a result of 

operational risks such as cyberattacks or 

other information technology failures.97

Some commenters stated that, in the 

absence of a likelihood assessment, two 

companies that have vastly different 

probabilities of material financial 

distress (or of threatening financial 

stability) will receive equivalent 

treatment in the designation process. 

These concerns are misplaced. In a 

designation process, the Council 

determines whether a company’s 

material financial distress or activities 

could pose a threat to financial stability. 

The supervisory regime and prudential 

requirements to mitigate that threat are 

established by the Federal Reserve, 

generally following the designation. As 

noted above, in developing prudential 

standards applicable to designated 


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98 Dodd-Frank Act section 165(a)(2)(A), 12 U.S.C. 

5365(a)(2)(A). 

99 177 F. Supp. 3d at 233–39. 

100See, for example, Dodd-Frank Act sections 

112(a)(2), 113, 115, 120, and 804, 12 U.S.C. 

5322(a)(2), 5323, 5325, 5330, and 5463. 

101Courts have recognized that ‘‘an agency 

charged with a duty to enforce or administer a 

statute has inherent authority to issue interpretive 

rules informing the public of the procedures and 

standards it intends to apply in exercising its 

discretion.’’ See, for example, Prod. Tool v. 

Employment & Training Admin., 688 F.2d 1161, 

1166 (7th Cir. 1982). The Supreme Court has 

acknowledged that ‘‘whether or not they enjoy any 

express delegation of authority on a particular 

question, agencies charged with applying a statute 

necessarily make all sorts of interpretive choices.’’ 

U.S. v. Mead, 533 U.S. 218, 227 (2001). 

102See Dodd-Frank Act section 111(e)(2), 12 

U.S.C. 5321(e)(2). 

nonbank financial companies, the 

Federal Reserve is required to 

differentiate among companies on an 

individual basis or by category, taking 

into consideration their capital 

structure, riskiness, complexity, 

financial activities, size, and any other 

risk-related factors that the Federal 

Reserve deems appropriate.98

Other commenters stated that the 

Council must assess a company’s 

likelihood of material financial distress 

under the first designation standard 

because, in their view, the court’s 

decision in MetLife requires it. As noted 

in section II.F above, as a district court 

opinion, MetLife is not binding on any 

other court or the Council (outside of 

the specific orders entered in that 

proceeding). More fundamentally, the 

court in MetLife held that the Council’s 

failure to assess the likelihood of 

MetLife’s material financial distress was 

contrary to the 2012 Interpretive 

Guidance, which the court interpreted 

to require a likelihood assessment.99

The MetLife court did not hold that a 

likelihood assessment was required by 

the Dodd-Frank Act or any other source 

of law beyond the 2012 Interpretive 

Guidance. Because the Final Guidance 

unequivocally eliminates any statement 

that the Council will assess a company’s 

likelihood of material financial distress, 

this element of the MetLife decision 

does not apply. 

Some commenters contended that the 

vulnerabilities or other factors described 

in the Proposed Analytic Framework 

implied an obligation to consider a 

company’s likelihood of financial 

distress. The Council disagrees and does 

not intend to interpret the Analytic 

Framework in that manner. The 

Analytic Framework does not add to or 

modify the standard for designation. 

Rather, the Analytic Framework 

describes how the Council considers 

risks to financial stability generally, 

regardless of the tool used to address 

those risks. The ‘‘vulnerabilities’’ 

described in the Analytic Framework do 

not imply an intention to consider a 

company’s likelihood of material 

financial distress. 

Some commenters argued that in the 

absence of a likelihood assessment, the 

Council will inappropriately designate 

companies without considering all of 

the relevant factors or any mitigation by 

the company or its regulators, and in 

circumstances such that designation 

will harm economic growth or impair 

financial stability. Some commenters 

argued that because designation is an 

important action, the Council should 

read into the statutory standard 

additional requirements, including the 

likelihood assessment, that Congress did 

not expressly adopt. For the reasons 

described above, the Council does not 

view a likelihood assessment as relevant 

to the statutory standard, related to the 

statutory considerations, or appropriate 

in a designation analysis. 

H. Other Comments Received 

The public comments on the 

Proposed Guidance were largely focused 

on the relatively small number of topics 

addressed above. However, the Council 

received and considered some 

comments addressing other issues. For 

example, one commenter stated that the 

Council should not designate nonbank 

financial companies during any period 

in which Congress is considering 

legislation related to financial stability. 

The Council believes that, pending any 

future legislation, the Council has a 

current statutory duty to carry out its 

responsibilities as directed by existing 

law. 

Another commenter suggested that 

following the failures of certain banks in 

the first half of 2023, the Council should 

table the Proposed Guidance and 

instead prioritize the identification and 

assessment of risks potentially affecting 

banks. The Council believes that the 

recent stress in the banking sector 

underscores the importance of 

actionable, durable, and transparent 

procedures for addressing potential 

threats to financial stability, consistent 

with the Final Guidance and the 

Analytic Framework. 

Some commenters who are 

commissioners of Council member 

agencies, but are not their chairs, 

expressed concern that only the chairs 

of their respective agencies are members 

of the Council. The Council appreciates 

the contributions of member agencies 

that are led by multi-member bodies, 

and notes that the composition of the 

Council is dictated by the Dodd-Frank 

Act. 

One commenter stated that any 

Council member’s public comments 

about potential designations could 

suggest prejudgment of the outcome 

before required procedural steps have 

occurred. The Council notes that it has 

reached no conclusions regarding the 

analysis of any nonbank financial 

company under the Final Guidance and 

the Analytic Framework and notes that 

the procedures in the Final Guidance 

are designed to provide many 

opportunities for companies under 

consideration to engage with staff of 

Council members and member agencies 

and to present relevant information to 

inform the views of the Council and its 

members. 

Several commenters expressed 

general support for the Proposed 

Guidance. Their reasons included that 

the changes proposed would help curb 

risks at nonbank entities, demonstrate 

the Council’s commitment to promoting 

financial innovation while safeguarding 

financial stability, and restore the 

Council’s ability to fulfill its mission. 

Commenters who expressed general 

opposition to the Proposed Guidance 

largely focused on changes from the 

2019 Interpretive Guidance, arguing that 

the Council should retain elements of 

the 2019 Guidance that the proposal 

omitted. These points are discussed in 

the sections above. 

Other commenters expressed support 

for the Proposed Guidance while also 

urging the Council to take immediate 

steps to respond to perceived risks to 

financial stability. The Council believes 

the Final Guidance provides the Council 

with the ability to use its statutory 

designation authority in applicable 

circumstances while providing 

important procedural safeguards and 

ample opportunities for engagement 

with companies under review and their 

primary financial regulators. 

III. Legal Authority of the Council and 

Status of the Final Guidance 

The Council has numerous authorities 

and tools under the Dodd-Frank Act to 

carry out its statutory purposes.100 The 

Council expects that its response to any 

potential risk or threat to U.S. financial 

stability will be based on an assessment 

of the circumstances. As the agency 

charged by Congress with broad-ranging 

responsibilities under sections 112 and 

113 of the Dodd-Frank Act, the Council 

has the inherent authority to promulgate 

interpretive guidance under those 

provisions that explains and interprets 

the steps the Council intends to take in 

the determination process.101 The 

Council also has authority to issue 

procedural rules 102 and policy 


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103See Ass’n of Flight Attendants-CWA, AFL–CIO 

v. Huerta, 785 F.3d 710 (D.C. Cir. 2015). 

104See 5 U.S.C. 553(b)(A). 

105Section 1310.3 does not apply to the Council’s 

issuance of rules, guidance, procedures, or other 

documents that do not amend or rescind Appendix 

A. Thus, other Council materials, including 

documents that are referred to in but are not a part 

of the Final Guidance, such as the Council’s 

separately issued Analytic Framework, hearing 

procedures, bylaws, and committee charters, are not 

subject to section 1310.3’s requirements. 106 44 U.S.C. 3507(d). 107 5 U.S.C. 801 et seq. 

statements.103 The Final Guidance 

provides transparency to the public as 

to how the Council intends to exercise 

its statutory grant of discretionary 

authority. Except to the extent that the 

Final Guidance sets forth rules of 

agency organization, procedure, or 

practice, the Council has concluded that 

the Final Guidance does not have 

binding effect and does not impose 

duties on, or alter the rights or interests 

of, any person. Further, the Final 

Guidance does not change the statutory 

standards for the Council’s actions and 

does not relieve the Council of the need 

to make entity-specific determinations 

in accordance with section 113 of the 

Dodd-Frank Act. The Final Guidance 

also does not limit the ability of the 

Council to take emergency action under 

section 113(f) of the Dodd-Frank Act if 

the Council determines that such action 

is necessary or appropriate to prevent or 

mitigate threats posed by a nonbank 

financial company to U.S. financial 

stability. As a result, the Council has 

concluded that the notice and comment 

requirements of the APA would not 

apply.104 However, in the Council’s rule 

codified at 12 CFR 1310.3, the Council 

voluntarily committed that it would not 

amend or rescind Appendix A to 12 

CFR part 1310 without providing the 

public with notice and an opportunity 

to comment in accordance with the 

procedures applicable to legislative 

rules under 5 U.S.C. 553.105

Consequently, the Council followed 

those procedures with respect to the 

Final Guidance. 

It is the Council’s intention that each 

portion of the Final Guidance, and the 

rescission of the 2019 Interpretive 

Guidance, should continue in effect if 

all or any other portion of the Final 

Guidance is held unlawful or otherwise 

set aside by a court. Further, if any 

portion of the Analytic Framework is 

held unlawful or otherwise set aside by 

a court, the Council intends that each 

portion of the Final Guidance that is not 

also held unlawful or otherwise set 

aside by a court should continue in 

effect. While the Final Guidance as a 

whole sets forth the process the Council 

intends to follow when considering a 

nonbank financial company for 

designation under section 113 of the 

Dodd-Frank Act, the Council would 

expect to follow any of the Final 

Guidance’s remaining portions if other 

portions were no longer in effect, and 

for the reasons described above would 

not expect to follow any aspect of the 

2019 Interpretive Guidance (other than 

with respect to those aspects of the 

Final Guidance that are identical to the 

2019 Interpretive Guidance). Similarly, 

the Council would expect to apply the 

Analytic Framework even if the Final 

Guidance, or any part of it, were no 

longer in effect. 

IV. Paperwork Reduction Act 

The collection of information 

contained in the Final Guidance has 

been reviewed and approved by the 

Office of Management and Budget in 

accordance with the Paperwork 

Reduction Act of 1995 106 under control 

number 1505–0244. An agency may not 

conduct or sponsor, and a person is not 

required to respond to, a collection of 

information unless it displays a valid 

control number assigned by the Office of 

Management and Budget. 

The collection of information under 

the Final Guidance is found in 12 CFR 

1310.20–23. 

The hours and costs associated with 

preparing data, information, and reports 

for submission to the Council constitute 

reporting and cost burdens imposed by 

the collection of information. The 

estimated total annual reporting burden 

associated with the collection of 

information in the Final Guidance is 

1,000 hours. We estimate the cost 

associated with this information 

collection to be $562,500. 

In making this estimate, the Council 

estimates that due to the nature of the 

information likely to be requested, 

approximately 75 percent of the burden 

in hours will be carried by financial 

companies internally at an average cost 

of $500 per hour, and the remainder 

will be carried by outside professionals 

retained by financial companies at an 

average cost of $750 per hour. In 

addition, in determining these 

estimates, the Council considered its 

obligation under 12 CFR 1310.20(b) to, 

whenever possible, rely on information 

available from the OFR or any Council 

member agency or primary financial 

regulatory agency that regulates a 

nonbank financial company before 

requiring the submission of reports from 

such nonbank financial company. The 

Council expects that its collection of 

information under the Final Guidance 

would be performed in a manner that 

attempts to minimize burdens for 

affected financial companies. The 

aggregate burden will be subject to the 

number of financial companies that are 

evaluated in the determination process, 

the extent of information regarding such 

companies that is available to the 

Council through existing public and 

regulatory sources, and the amount and 

types of information that financial 

companies provide to the Council. 

The Proposed Guidance requested 

comment on the estimates and other 

assumptions in the proposed collection 

of information, but the Council received 

no comments in response to the 

questions presented. 

V. Executive Orders 12866, 13563, and 

14094 

Executive Orders 12866, 13563 and 

14094 direct certain agencies to assess 

costs and benefits of available regulatory 

alternatives and, if regulation is 

necessary, to select regulatory 

approaches that maximize net benefits 

(including potential economic, 

environmental, public health and safety 

effects, distributive impacts, and 

equity). Pursuant to section 3(f) of 

Executive Order 12866, as amended by 

Executive Order 14094, the Office of 

Information and Regulatory Affairs 

within the Office of Management and 

Budget has determined that the Final 

Guidance is a ‘‘significant regulatory 

action.’’ Accordingly, the Office of 

Management and Budget has reviewed 

the Final Guidance. 

VI. Congressional Review Act 

Pursuant to the Congressional Review 

Act,107 the Office of Information and 

Regulatory Affairs designated this rule 

as a major rule as defined by 5 U.S.C. 

804(2). 

List of Subjects in 12 CFR Part 1310 

Brokers, Investments, Securities. 

The Financial Stability Oversight 

Council is amending 12 CFR part 1310 

as follows: 

PART 1310—AUTHORITY TO REQUIRE 

SUPERVISION AND REGULATION OF 

CERTAIN NONBANK FINANCIAL 

COMPANIES 

■ 1. The authority citation for part 1310 

continues to read as follows: 

Authority: 12 U.S.C. 5321; 12 U.S.C. 5322; 

12 U.S.C. 5323. 

■ 2. Appendix A is revised to read as 

follows: 


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1 12 U.S.C. 5323. 

2See 12 CFR part 1310. 

3The Council may waive or modify this process 

in its discretion if it determines that emergency 

circumstances exist, including if necessary or 

appropriate to prevent or mitigate threats posed by 

a nonbank financial company to U.S. financial 

stability in accordance with section 113(f) of the 

Dodd-Frank Act, 12 U.S.C. 5323(f). 

4The Council intends to interpret the term 

‘‘company’’ to include any corporation, limited 

liability company, partnership, business trust, 

association, or similar organization. See DoddFrank Act section 102(a)(4), 12 U.S.C. 5311(a)(4). In 

addition, the Council intends to interpret ‘‘nonbank 

financial company supervised by the Board of 

Governors’’ as including any nonbank financial 

company that acquires, directly or indirectly, a 

majority of the assets or liabilities of a company that 

is subject to a final determination of the Council. 

As a result, if a nonbank financial company subject 

to a final determination of the Council sells or 

otherwise transfers a majority of its assets or 

liabilities, the acquirer will succeed to, and become 

subject to, the Council’s determination. As 

discussed in section III of this appendix A, a 

nonbank financial company that is subject to a final 

determination of the Council may request a 

reevaluation of the determination before the next 

required annual reevaluation, in an appropriate 

case. Such an acquirer can use this reevaluation 

process to seek a rescission of the determination 

upon consummation of its transaction. 

5See Dodd-Frank Act section 2(12), 12 U.S.C. 

5301(12). In each stage of the Council’s process 

under section 113 of the Dodd-Frank Act, the 

Council may also consult with, solicit information 

from, or coordinate with other state or federal 

financial regulatory agencies that have jurisdiction 

over the nonbank financial company or its 

activities. 

6See Dodd-Frank Act section 112(d)(3), 12 U.S.C. 

5322(d)(3). 

7See 12 CFR 1310.21(c). 

8The Council’s Deputies Committee is composed 

of senior officials from each Council member and 

member agency. See Bylaws of the Deputies 

Committee of the Financial Stability Oversight 

Council, available at https://fsoc.gov. 

9The Nonbank Designations Committee supports 

the Council in fulfilling the Council’s 

responsibilities to consider, make, and review 

Council determinations regarding nonbank 

financial companies under section 113 of the DoddFrank Act. See Charter of the Nonbank Financial 

Companies Designations Committee of the 

Financial Stability Oversight Council, available at 

https://fsoc.gov. 

Appendix A to Part 1310—Financial 

Stability Oversight Council Guidance 

for Nonbank Financial Company 

Determinations 

I. Introduction 

Section 113 of the Dodd-Frank Wall Street 

Reform and Consumer Protection Act (the 

Dodd-Frank Act) 1 authorizes the Financial 

Stability Oversight Council (the Council) to 

determine that a nonbank financial company 

will be supervised by the Board of Governors 

of the Federal Reserve System (the Federal 

Reserve Board) and be subject to prudential 

standards, in accordance with Title I of the 

Dodd-Frank Act, if either (1) the Council 

determines that material financial distress at 

the nonbank financial company could pose a 

threat to U.S. financial stability, or (2) the 

nature, scope, size, scale, concentration, 

interconnectedness, or mix of the activities of 

the nonbank financial company could pose a 

threat to U.S. financial stability. Section 113 

of the Dodd-Frank Act lists the 

considerations that the Council must take 

into account in making a determination. This 

guidance supplements the Council’s rule 

regarding nonbank financial company 

determinations.2

Section II of this appendix outlines a twostage process that the Council generally 

expects to follow when determining whether 

to subject a nonbank financial company to 

Federal Reserve Board supervision and 

prudential standards.3 Section III sets forth 

the process the Council expects to follow in 

conducting reevaluations of its previous 

determinations. 

II. Process for Nonbank Financial Company 

Determinations 

Under section 113 of the Dodd-Frank Act, 

the Council may evaluate a nonbank 

financial company 4 for an entity-specific 

determination. This section describes the 

process the Council expects to follow in 

general for those reviews. 

a. Overview of the Determination Process 

As described in detail below, the Council 

expects generally to follow a two-stage 

process of evaluation and analysis when 

evaluating a nonbank financial company 

under section 113 of the Dodd-Frank Act. 

During the first stage of the process (Stage 1), 

a nonbank financial company identified for 

review will be notified as provided below 

and subject to a preliminary analysis, based 

on quantitative and qualitative information 

available to the Council primarily through 

public and regulatory sources. During Stage 

1, the Council will permit, but not require, 

the company to submit relevant information. 

The Council will also consult with the 

company’s primary financial regulatory 

agency 5 or home country supervisor, as 

appropriate. This approach will enable the 

Council to fulfill its statutory obligation to 

rely whenever possible on information 

available through the Office of Financial 

Research (the OFR), Council member 

agencies, or the nonbank financial company’s 

primary financial regulatory agency before 

requiring the submission of reports from any 

nonbank financial company.6

Following Stage 1, any nonbank financial 

company that is selected for additional 

review will receive notice that it is being 

considered for a proposed determination that 

the company will be supervised by the 

Federal Reserve Board and be subject to 

prudential standards under Title I of the 

Dodd-Frank Act (a Proposed Determination) 

and that the company will be subject to indepth evaluation during the second stage of 

review (Stage 2). Stage 2 will also involve the 

evaluation of additional information 

collected directly from the nonbank financial 

company. At the end of Stage 2, the Council 

may consider whether to make a Proposed 

Determination with respect to the nonbank 

financial company. If the Council makes a 

Proposed Determination, the nonbank 

financial company may request a hearing in 

accordance with section 113(e) of the DoddFrank Act and § 1310.21(c) of the Council’s 

rule regarding nonbank financial company 

determinations.7 After making a Proposed 

Determination and holding any written or 

oral hearing if requested, the Council may 

vote to make a final determination (a Final 

Determination). 

b. Stage 1: Preliminary Evaluation of 

Nonbank Financial Companies 

Stage 1 involves a preliminary analysis of 

nonbank financial companies to assess the 

risks they could pose to U.S. financial 

stability. In light of the preliminary nature of 

a review in Stage 1, the Council expects that 

not all companies reviewed in Stage 1 will 

proceed to Stage 2 or a Final Determination. 

Identification of Company for Review in 

Stage 1 

The Council may evaluate one or more 

individual nonbank financial companies for 

an entity-specific determination under 

section 113 of the Dodd-Frank Act. The 

Council’s staff-level committees are 

responsible for monitoring and analyzing 

financial markets, financial companies, the 

financial system, and issues related to 

financial stability. These committees monitor 

a broad range of asset classes, institutions, 

and activities, as described in the Council’s 

Analytic Framework for Financial Stability 

Risk Identification, Assessment, and 

Response (the Analytic Framework), and as 

reflected in the Council’s annual reports. In 

assessing potential risks, these committees 

consider the vulnerabilities, types of metrics, 

and transmission channels described in the 

Analytic Framework. These committees, in 

the course of their duties, will monitor each 

sector of the financial system at least 

annually and will report to the Deputies 

Committee 8 regarding potential risks to U.S. 

financial stability that they identify. With 

respect to these monitoring and reporting 

activities, the Council’s Systemic Risk 

Committee is responsible for monitoring and 

reporting on each financial sector, including 

information on identified firms and activities 

that may pose risks that merit further review, 

unless another Council committee or working 

group provides such updates to the Deputies 

Committee on a particular sector. The 

updates to the Deputies Committee will use 

applicable metrics as described in the 

Analytic Framework. The Deputies 

Committee is responsible for directing, 

coordinating, and overseeing the work of the 

Systemic Risk Committee and all of the 

Council’s other staff-level committees and 

working groups in accordance with this 

guidance. If an identified risk relates to one 

or more financial companies that may merit 

review in the context of a potential 

determination under section 113, the Council 

may review those companies in Stage 1. 

Alternatively, the Deputies Committee may 

direct a staff-level committee or working 

group to further assess the identified risks, 

including consideration of whether the risks 

could be addressed by a designation under 

section 113 or by use of a different Council 

authority, such as recommendations to 

existing regulators. The Deputies Committee 

may also direct the Council’s Nonbank 

Financial Companies Designations 

Committee (the Nonbank Designations 

Committee) 9 to conduct an initial analysis of 


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10 Dodd-Frank Act section 113(g), 12 U.S.C. 

5323(g). 

11The Council intends to interpret the term 

‘‘material financial distress’’ as a nonbank financial 

company being in imminent danger of insolvency 

or defaulting on its financial obligations. 

12See 12 CFR 1310.21(a). 

13See Dodd-Frank Act section 112(d), 12 U.S.C. 

5322(d). 

the companies based on the risk-assessment 

approach described in the Analytic 

Framework. The purpose of such an analysis 

by the Nonbank Designations Committee 

would be to further inform the determination 

regarding whether one or more companies 

should be reviewed in Stage 1, if needed. 

Following any such analysis by the Nonbank 

Designations Committee, the Council may 

review one or more companies in Stage 1. 

Any Council committee’s identification, 

reporting, direction, analysis, or 

recommendation described in this paragraph 

will be made in accordance with such 

committee’s bylaws or charter. 

When evaluating the potential risks 

associated with a nonbank financial 

company, the Council may consider the 

company and its subsidiaries separately or 

together. This approach enables the Council 

to consider potential risks arising across the 

entire organization, while retaining the 

ability to make a determination regarding 

either the parent or any individual nonbank 

financial company subsidiary (or neither), 

depending on which entity the Council 

determines could pose a threat to financial 

stability. 

Engagement With Company and Regulators 

in Stage 1 

The Council will provide a notice to any 

nonbank financial company under review in 

Stage 1 no later than 60 days before the 

Council votes on whether to evaluate the 

company in Stage 2. In Stage 1, the Council 

will consider available public and regulatory 

information. In order to reduce the burdens 

of review on the company, the Council will 

not require the company to submit 

information during Stage 1; however, a 

company under review in Stage 1 may 

submit to the Council any information 

relevant to the Council’s evaluation and may, 

upon request, meet with staff of Council 

members and member agencies who are 

leading the Council’s analysis. The Council 

may request a page-limited summary of the 

company’s submissions. In addition, staff 

representing the Council will, upon request, 

provide the company with a list of the 

primary public sources of information being 

considered during the Stage 1 analysis, so 

that the company has an opportunity to 

understand the information the Council may 

rely upon during Stage 1. In addition, during 

discussions in Stage 1 with the company, the 

Council intends for representatives of the 

Council to indicate to the company potential 

risks that have been identified in the 

analysis. However, any potential risks 

identified at this stage are preliminary and 

may continue to develop until the Council 

makes a Final Determination. Through this 

engagement, the Council seeks to provide the 

company under review an opportunity to 

understand the focus of the Council’s 

analysis, which may enable the company to 

act to mitigate any risks to financial stability 

and thereby potentially avoid becoming 

subject to a Council determination. 

The Council will also consider in Stage 1 

information available from relevant existing 

regulators of the company. Under the DoddFrank Act, the Council is required to consult 

with the primary financial regulatory agency, 

if any, for each nonbank financial company 

or subsidiary of a nonbank financial 

company that is being considered for a 

determination before the Council makes any 

Final Determination with respect to such 

company.10 For any company under review 

in Stage 1 that is regulated by a primary 

financial regulatory agency or home country 

supervisor, the Council will notify the 

regulator or supervisor that the company is 

under review no later than the time the 

company is notified. The Council will also 

consult with the primary financial regulatory 

agency, if any, of each significant subsidiary 

of the nonbank financial company, to the 

extent the Council deems appropriate in 

Stage 1. The Council will actively solicit the 

regulator’s views regarding risks at the 

company and potential mitigants or 

aggravating factors. In order to enable the 

regulator to provide relevant information, the 

Council will share its preliminary views 

regarding potential risks at the company, if 

any and to the extent practicable, and request 

that the regulator provide information 

regarding those specific risks, including the 

extent to which the risks are adequately 

mitigated by factors such as existing 

regulation or the company’s business 

practices. During the determination process, 

the Council will encourage the regulator to 

address any risks to U.S. financial stability 

using the regulator’s existing authorities; if 

the Council believes regulators’ or the 

company’s actions have adequately 

addressed the potential risks to U.S. financial 

stability the Council has identified, the 

Council may discontinue its consideration of 

the company for a potential determination 

under section 113 of the Dodd-Frank Act. 

Based on the preliminary evaluation in 

Stage 1, the Council, on a nondelegable basis, 

may vote to commence a more detailed 

analysis of the company by advancing the 

company to Stage 2, or it may decide not to 

evaluate the company further. If the Council 

votes not to advance a company that has been 

reviewed in Stage 1 to Stage 2, the Council 

will notify the company in writing of the 

Council’s decision. The notice will clarify 

that a decision not to advance the company 

from Stage 1 to Stage 2 at that time does not 

preclude the Council from reinitiating review 

of the company in Stage 1. 

c. Stage 2: In-Depth Evaluation 

Stage 2 involves an in-depth evaluation of 

a nonbank financial company that the 

Council has determined merits additional 

review. 

In Stage 2, the Council will review a 

nonbank financial company using 

information collected directly from the 

company, through the OFR, as well as public 

and regulatory information. The review will 

focus on whether material financial 

distress 11 at the nonbank financial company, 

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. The Analytic 

Framework describes the Council’s approach 

to evaluating potential risks to U.S. financial 

stability, including in the context of a review 

under section 113 of the Dodd-Frank Act. 

Engagement With Company and Regulators 

in Stage 2 

A nonbank financial company to be 

evaluated in Stage 2 will receive a notice (a 

Notice of Consideration) that the company is 

under consideration for a Proposed 

Determination. The Council also will submit 

to the company a request that the company 

provide information that the Council deems 

relevant to the Council’s evaluation, and the 

nonbank financial company will be provided 

an opportunity to submit written materials to 

the Council.12 This information will 

generally be collected by the OFR.13 Before 

requiring the submission of reports from any 

nonbank financial company that is regulated 

by a Council member agency or a primary 

financial regulatory agency, the Council, 

acting through the OFR, will coordinate with 

such agencies and will, whenever possible, 

rely on information available from the OFR 

or such agencies. Council members and their 

agencies and staffs will maintain the 

confidentiality of such information in 

accordance with applicable law. During Stage 

2, the company may also submit any other 

information that it deems relevant to the 

Council’s evaluation. Information that may 

be considered by the Council includes details 

regarding the company’s financial activities, 

legal structure, liabilities, counterparty 

exposures, resolvability, and existing 

regulatory oversight. Information requests 

likely will involve both qualitative and 

quantitative information. Information 

relevant to the Council’s analysis may 

include confidential business information 

such as detailed information regarding 

financial assets, terms of funding 

arrangements, counterparty exposure or 

position data, strategic plans, and 

interaffiliate transactions. 

The Council will make staff representing 

Council members available to meet with the 

representatives of any company that enters 

Stage 2, to explain the evaluation process and 

the framework for the Council’s analysis. In 

addition, the Council expects that its 

Deputies Committee will grant a request to 

meet with a company in Stage 2 to allow the 

company to present any information or 

arguments it deems relevant to the Council’s 

evaluation. If the analysis in Stage 1 has 

identified specific aspects of the company’s 

operations or activities as the primary focus 

for the evaluation, staff will notify the 

company of those specific aspects, although 

the areas of analytic focus may change based 

on the ongoing analysis. 

During Stage 2 the Council will also seek 

to continue its consultation with the 

company’s primary financial regulatory 

agency or home country supervisor in a 

timely manner before the Council makes a 

Proposed or Final Determination with respect 

to the company. The Council will continue 

to encourage the regulator during the 

determination process to address any risks to 


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80130 Federal Register / Vol. 88, No. 221 / Friday, November 17, 2023 / Rules and Regulations 

14See 12 CFR 1310.21(a)(3). 

15 12 CFR 1310.10(b). 

16See Dodd-Frank Act section 113(e)(1), 12 U.S.C. 

5323(e)(1). 

17See 12 CFR 1310.21(c). 

18Financial Stability Oversight Council Hearing 

Procedures for Proceedings Under Title I or Title 

VIII of the Dodd-Frank Wall Street Reform and 

Consumer Protection Act, available at https://

fsoc.gov. 

19 Dodd-Frank Act section 113(e)(3), 12 U.S.C. 

5323(e)(3); see also 12 CFR 1310.21(d)(2) and (e)(2). 

20See 12 CFR 1310.21(d)(3) and (e)(3) and 

1310.22(d)(3). 

21See Dodd-Frank Act section 113(h), 12 U.S.C. 

5323(h). 

22See Dodd-Frank Act section 112(d)(5), 12 

U.S.C. 5322(d)(5); see also 12 CFR 1310.20(e). 

23 Dodd-Frank Act section 113(d), 12 U.S.C. 

5323(d). 

U.S. financial stability using the regulator’s 

existing authorities; as noted above, if the 

Council believes regulators’ or the company’s 

actions adequately address the potential risks 

to U.S. financial stability the Council has 

identified, the Council would expect to 

discontinue its consideration of the company 

for a potential determination under section 

113 of the Dodd-Frank Act. 

Before making a Proposed Determination 

regarding a nonbank financial company, the 

Council will notify the company when the 

Council believes that the evidentiary record 

regarding the company is complete.14 The 

Council will notify any nonbank financial 

company in Stage 2 if the company ceases to 

be considered for a determination. Any 

nonbank financial company that ceases to be 

considered at any time in the Council’s 

determination process may be considered for 

a potential determination in the future at the 

Council’s discretion, consistent with the 

processes described above. 

d. Proposed and Final Determinations 

Proposed Determination 

Based on the analysis performed in Stage 

2, a nonbank financial company may be 

considered for a Proposed Determination. A 

Proposed Determination requires a vote, on a 

nondelegable basis, of two-thirds of the 

voting members of the Council then serving, 

including an affirmative vote by the 

Chairperson of the Council.15 Following a 

Proposed Determination, the Council will 

issue a written notice of the Proposed 

Determination to the nonbank financial 

company, which will include an explanation 

of the basis of the Proposed Determination.16

Promptly after the Council votes to make a 

Proposed Determination regarding a 

company, the Council will provide the 

company’s primary financial regulatory 

agency or home country supervisor with the 

nonpublic written explanation of the basis of 

the Council’s Proposed Determination 

(subject to appropriate protections for 

confidential information). 

Hearing 

A nonbank financial company that is 

subject to a Proposed Determination may 

request a nonpublic hearing to contest the 

Proposed Determination in accordance with 

section 113(e) of the Dodd-Frank Act and 

§ 1310.21(c) of the Council’s rule regarding 

nonbank financial company 

determinations.17 If the nonbank financial 

company requests a hearing in accordance 

with the procedures set forth in § 1310.21(c), 

the Council will set a time and place for such 

hearing. The Council has published hearing 

procedures on its website.18 In light of the 

statutory timeframe for conducting a hearing, 

and the fact that the purpose of the hearing 

is to benefit the company, if a company 

requests that the Council waive the statutory 

deadline for conducting the hearing, the 

Council may do so in appropriate 

circumstances. 

Final Determination 

After making a Proposed Determination 

and holding any requested written or oral 

hearing, the Council, on a nondelegable 

basis, may, by a vote of not fewer than twothirds of the voting members of the Council 

then serving (including an affirmative vote by 

the Chairperson of the Council), make a Final 

Determination that the company will be 

subject to supervision by the Federal Reserve 

Board and prudential standards. If the 

Council makes a Final Determination, it will 

provide the company with a written notice of 

the Council’s Final Determination, including 

an explanation of the basis for the Council’s 

decision.19 The Council will also provide the 

company’s primary financial regulatory 

agency or home country supervisor with the 

nonpublic written explanation of the basis of 

the Council’s Final Determination (subject to 

appropriate protections for confidential 

information). The Council expects that its 

explanation of the basis for any Final 

Determination will highlight the key risks 

that led to the determination and include 

guidance regarding the factors that were 

important in the Council’s determination. 

When practicable and consistent with the 

purposes of the determination process, the 

Council will provide a nonbank financial 

company with notice of a Final 

Determination at least one business day 

before publicly announcing the 

determination pursuant to § 1310.21(d)(3), 

§ 1310.21(e)(3), or § 1310.22(d)(3) of the 

Council’s rule.20 In accordance with the 

Dodd-Frank Act, a nonbank financial 

company that is subject to a Final 

Determination may bring an action in U.S. 

district court for an order requiring that the 

determination be rescinded.21

The Council does not intend to publicly 

announce the name of any nonbank financial 

company that is under evaluation prior to a 

Final Determination with respect to such 

company. However, if a company that is 

under review in Stage 1 or Stage 2 publicly 

announces the status of its review by the 

Council, the Council intends, upon the 

request of a third party, to confirm the status 

of the company’s review. In addition, the 

Council will publicly release the explanation 

of the Council’s basis for any Final 

Determination or rescission of a 

determination, following such an action by 

the Council. The Council is subject to 

statutory and regulatory requirements to 

maintain the confidentiality of certain 

information submitted to it by a nonbank 

financial company or its regulators.22 In light 

of these confidentiality obligations, such 

confidential information will be redacted 

from the materials that the Council makes 

publicly available, although the Council does 

not expect to restrict a company’s ability to 

disclose such information. 

III. Annual Reevaluations of Nonbank 

Financial Company Determinations 

After the Council makes a Final 

Determination regarding a nonbank financial 

company, the Council intends to encourage 

the company or its regulators to take steps to 

mitigate the potential risks identified in the 

Council’s written explanation of the basis for 

its Final Determination. Except in cases 

where new material risks arise over time, if 

the potential risks identified in writing by the 

Council at the time of the Final 

Determination and in subsequent 

reevaluations have been adequately 

addressed, generally the Council would 

expect to rescind its determination regarding 

the company. 

For any nonbank financial company that is 

subject to a Final Determination, the Council 

is required to reevaluate the determination at 

least annually, and to rescind the 

determination if the Council determines that 

the company no longer meets the statutory 

standards for a determination.23 The Council 

may also consider a request from a company 

for a reevaluation before the next required 

annual reevaluation, in the case of an 

extraordinary change that materially affects 

the Council’s analysis. 

The Council will apply the same standards 

of review in its annual reevaluations as the 

standards for an initial determination 

regarding a nonbank financial company: 

either material financial distress at the 

company, or the nature, scope, size, scale, 

concentration, interconnectedness, or the 

mix of the company’s activities, could pose 

a threat to U.S. financial stability. If the 

Council determines that the company does 

not meet either of those standards, the 

Council will rescind its determination. 

The Council’s annual reevaluations will 

generally assess whether any material 

changes since the previous reevaluation and 

since the Final Determination justify a 

rescission of the determination. The Council 

expects that its reevaluation process will 

focus on whether any material changes that 

have taken effect—including changes at the 

company, changes in its markets or its 

regulation, changes in the impact of relevant 

factors, or otherwise—result in the company 

no longer meeting the standards for a 

determination. In light of the frequent 

reevaluations, the Council’s analyses will 

generally focus on material changes since the 

Council’s previous review, but the ultimate 

question the Council will seek to assess is 

whether changes in the aggregate since the 

Council’s Final Determination regarding the 

company have caused the company to cease 

meeting either of the statutory standards for 

a determination. 

During the Council’s annual reevaluation 

of a determination regarding a nonbank 

financial company, the Council will provide 

the company with an opportunity to meet 

with representatives of the Council to discuss 

the scope and process for the review and to 


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Federal Register / Vol. 88, No. 221 / Friday, November 17, 2023 / Rules and Regulations 80131 

present information regarding any change 

that may be relevant to the threat the 

company could pose to financial stability. In 

addition, during an annual reevaluation, the 

company may submit any written 

information to the Council the company 

deems relevant to the Council’s analysis. 

During annual reevaluations, a company is 

encouraged to submit information regarding 

any changes related to the company’s risk 

profile that mitigate the potential risks 

previously identified by the Council. Such 

changes could include updates regarding 

company restructurings, regulatory 

developments, market changes, or other 

factors. If the company or its regulators have 

taken steps to address the potential risks 

previously identified by the Council, the 

Council will assess whether the risks have 

been adequately mitigated to merit a 

rescission of the determination regarding the 

company. If the company explains in detail 

and in a timely manner potential changes it 

could make to its business to address the 

potential risks previously identified by the 

Council, representatives of the Council will 

endeavor to provide their feedback on the 

extent to which those changes may address 

the potential risks. 

If a company contests the Council’s 

determination during the Council’s annual 

reevaluation, the Council will vote on 

whether to rescind the determination and 

provide the company, its primary financial 

regulatory agency or home country 

supervisor, and the primary financial 

regulatory agency of its significant 

subsidiaries with a notice explaining the 

primary basis for any decision not to rescind 

the determination. If the Council does not 

rescind the determination, the written notice 

provided to the company will address the 

most material factors raised by the company 

in its submissions to the Council contesting 

the determination during the annual 

reevaluation. The written notice from the 

Council will also explain why the Council 

did not find that the company no longer met 

the standard for a determination under 

section 113 of the Dodd-Frank Act. In 

general, due to the sensitive, companyspecific nature of its analyses in annual 

reevaluations, the Council generally would 

not publicly release the written findings that 

it provides to the company, although the 

Council does not expect to restrict a 

company’s ability to disclose such 

information. 

Finally, the Council will provide each 

nonbank financial company subject to a 

Council determination an opportunity for an 

oral hearing before the Council once every 

five years at which the company can contest 

the determination. 

Nellie Liang 

Under Secretary for Domestic Finance. 

[FR Doc. 2023–25053 Filed 11–16–23; 8:45 am] 

BILLING CODE 4810–AK–P–P 

DEPARTMENT OF COMMERCE 

Bureau of Industry and Security 

15 CFR Part 744 

[Docket No. 231114–0268] 

RIN 0694–AJ47 

Entity List Removal 

AGENCY: Bureau of Industry and 

Security, Department of Commerce. 

ACTION: Final rule. 

SUMMARY: In this rule, the Bureau of 

Industry and Security (BIS) amends the 

Export Administration Regulations 

(EAR) by removing one entity under the 

destination of the People’s Republic of 

China (China). 

DATES: This rule is effective November 

16, 2023. 

FOR FURTHER INFORMATION CONTACT: 

Chair, End-User Review Committee, 

Office of the Assistant Secretary for 

Export Administration, Bureau of 

Industry and Security, Department of 

Commerce, Phone: (202) 482–5991, 

Email: ERC@bis.doc.gov. 

SUPPLEMENTARY INFORMATION: 

Background 

The Entity List (supplement no. 4 to 

part 744 of the EAR (15 CFR parts 730– 

774)) identifies entities for which there 

is reasonable cause to believe, based on 

specific and articulable facts, that the 

entities have been involved, are 

involved, or pose a significant risk of 

being or becoming involved in activities 

contrary to the national security or 

foreign policy interests of the United 

States, pursuant to § 744.11(b). The EAR 

impose additional license requirements 

on, and limit the availability of, most 

license exceptions for exports, 

reexports, and transfers (in-country) 

when a listed entity is a party to the 

transaction. The license review policy 

for each listed entity is identified in the 

‘‘License Review Policy’’ column on the 

Entity List, and the impact on the 

availability of license exceptions is 

described in the relevant Federal 

Register document that added the entity 

to the Entity List. The Bureau of 

Industry and Security (BIS) places 

entities on the Entity List pursuant to 

parts 744 (Control Policy: End-User and 

End-Use Based) and 746 (Embargoes 

and Other Special Controls) of the EAR. 

The End-User Review Committee 

(ERC), composed of representatives of 

the Departments of Commerce (Chair), 

State, Defense, Energy and, where 

appropriate, the Treasury, makes all 

decisions regarding additions to, 

removals from, or other modifications to 

the Entity List. The ERC makes all 

decisions to add an entry to the Entity 

List by majority vote and makes all 

decisions to remove or modify an entry 

by unanimous vote. 

Entity List Decisions 

Removal From the Entity List 

The ERC determined to remove the 

Ministry of Public Security’s Institute of 

Forensic Science of China from the 

Entity List pursuant to a removal 

proposal and review that the ERC 

conducted in accordance with 

procedures described in supplement no. 

5 to part 744 of the EAR. Prior to 

removal from the Entity List by this 

rule, the Ministry of Public Security’s 

Institute of Forensic Science of China 

was listed under the destination of 

China. 

Export Control Reform Act of 2018 

On August 13, 2018, the President 

signed into law the John S. McCain 

National Defense Authorization Act for 

Fiscal Year 2019, which included the 

Export Control Reform Act of 2018 

(ECRA) (50 U.S.C. 4801–4852). ECRA 

provides the legal basis for BIS’s 

principal authorities and serves as the 

authority under which BIS issues this 

rule. 

Rulemaking Requirements 

1. This rule has been determined to be 

not significant for purposes of Executive 

Order 12866. 

2. Notwithstanding any other 

provision of law, no person is required 

to respond to or be subject to a penalty 

for failure to comply with a collection 

of information, subject to the 

requirements of the Paperwork 

Reduction Act of 1995 (44 U.S.C. 3501 

et seq.) (PRA), unless that collection of 

information displays a currently valid 

Office of Management and Budget 

(OMB) Control Number. This regulation 

involves an information collection 

approved by OMB under control 

number 0694–0088, Simplified Network 

Application Processing System. BIS 

does not anticipate a change to the 

burden hours associated with this 

collection as a result of this rule. 

Information regarding the collection, 

including all supporting materials, can 

be accessed at https://www.reginfo.gov/ 

public/do/PRAMain. 

3. This rule does not contain policies 

with federalism implications as that 

term is defined in Executive Order 

13132. 

4. Pursuant to section 1762 of the 

Export Control Reform Act of 2018, this 

action is exempt from the 

Administrative Procedure Act (5 U.S.C. 


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