Federal Register / Vol. 77, No. 70 / Wednesday, April 11, 2012 / Rules and Regulations 21637 

1See 12 U.S.C. 5311(a)(4). 

2See 12 U.S.C. 5311(a)(6). 

3See 12 U.S.C. 5311(b). 

full amount owed plus any applicable 

interest, and to make an advance 

payment of the full amount of the 

estimated fee before the Council begins 

to process a new request or the pending 

request. 

(5) When the Council acts under 

paragraphs (g)(1) through (4) of this 

section, the administrative time limits of 

twenty (20) days (excluding Saturdays, 

Sundays, and legal public holidays) 

from receipt of initial requests or 

appeals, plus extensions of these time 

limits, shall begin only after any 

applicable fees have been paid (in the 

case of paragraphs (g)(2), (g)(3), or 

(g)(4)), a written agreement to pay fees 

has been provided (in the case of 

paragraph (g)(1)), or a request has been 

reformulated (in the case of paragraphs 

(g)(1) or (g)(2)). 

(h) Form of payment. Payment may be 

made by check or money order paid to 

the Treasurer of the United States. 

(i) Charging interest. The Council may 

charge interest on any unpaid bill 

starting on the 31st day following the 

date of billing the requester. Interest 

charges will be assessed at the rate 

provided in 31 U.S.C. 3717 and will 

accrue from the date of the billing until 

payment is received by the Council. The 

Council will follow the provisions of the 

Debt Collection Act of 1982 (Pub. L. 97– 

365, 96 Stat. 1749), as amended, and its 

administrative procedures, including 

the use of consumer reporting agencies, 

collection agencies, and offset. 

(j) Aggregating requests. If the Council 

reasonably determines that a requester 

or a group of requesters acting together 

is attempting to divide a request into a 

series of requests for the purpose of 

avoiding fees, the Council may aggregate 

those requests and charge accordingly. 

The Council may presume that multiple 

requests involving related matters 

submitted within a thirty (30) calendar 

day period have been made in order to 

avoid fees. The Council shall not 

aggregate multiple requests involving 

unrelated matters. 

Dated: April 3, 2012. 

Rebecca Ewing, 

Acting Executive Secretary, Department of 

the Treasury. 

[FR Doc. 2012–8625 Filed 4–10–12; 8:45 am] 

BILLING CODE 4810–25–P 

FINANCIAL STABILITY OVERSIGHT 

COUNCIL 

12 CFR Part 1310 

RIN 4030–AA00 

Authority To Require Supervision and 

Regulation of Certain Nonbank 

Financial Companies 

AGENCY: Financial Stability Oversight 

Council. 

ACTION: Final rule and interpretive 

guidance. 

SUMMARY: Section 113 of the DoddFrank Wall Street Reform and Consumer 

Protection Act (the ‘‘Dodd-Frank Act’’) 

authorizes the Financial Stability 

Oversight Council (the ‘‘Council’’) to 

determine that a nonbank financial 

company shall be supervised by the 

Board of Governors of the Federal 

Reserve System (the ‘‘Board of 

Governors’’) and shall be subject to 

prudential standards, in accordance 

with Title I of the Dodd-Frank Act, if the 

Council determines that material 

financial distress at the nonbank 

financial company, or the nature, scope, 

size, scale, concentration, 

interconnectedness, or mix of the 

activities of the nonbank financial 

company, could pose a threat to the 

financial stability of the United States. 

This final rule and the interpretive 

guidance attached as an appendix 

thereto describe the manner in which 

the Council intends to apply the 

statutory standards and considerations, 

and the processes and procedures that 

the Council intends to follow, in making 

determinations under section 113 of the 

Dodd-Frank Act. 

DATES: Effective date: May 11, 2012. 

FOR FURTHER INFORMATION CONTACT: 

Lance Auer, Office of Domestic Finance, 

Treasury, at (202) 622–1262, or Eric 

Froman, Office of the General Counsel, 

Treasury, at (202) 622–1942. 

SUPPLEMENTARY INFORMATION: 

I. Background 

Section 111 of the Dodd-Frank Act (12 

U.S.C. 5321) established the Financial 

Stability Oversight Council. Among the 

purposes of the Council under section 

112 of the Dodd-Frank Act (12 U.S.C. 

5322) 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.’’ 

In the recent financial crisis, financial 

distress at certain nonbank financial 

companies contributed to a broad 

seizing up of financial markets and 

stress at other financial firms. Many of 

these nonbank financial companies 

were not subject to the type of 

regulation and consolidated supervision 

applied to bank holding companies, nor 

were there effective mechanisms in 

place to resolve the largest and most 

interconnected of these nonbank 

financial companies without causing 

further instability. To address any 

potential risks to U.S. financial stability 

posed by these companies, the DoddFrank Act authorizes the Council to 

determine that certain nonbank 

financial companies will be subject to 

supervision by the Board of Governors 

and prudential standards. The Board of 

Governors is responsible for establishing 

the prudential standards that will be 

applicable, under section 165 of the 

Dodd-Frank Act, to nonbank financial 

companies subject to a Council 

determination. 

Title I of the Dodd-Frank Act defines 

a ‘‘nonbank financial company’’ as a 

domestic or foreign company that is 

‘‘predominantly engaged in financial 

activities,’’ other than bank holding 

companies and certain other types of 

firms.1 The Dodd-Frank Act provides 

that a company is ‘‘predominantly 

engaged’’ in financial activities if either 

(i) the annual gross revenues derived by 

the company and all of its subsidiaries 

from financial activities, as well as from 

the ownership or control of insured 

depository institutions, represent 85 

percent or more of the consolidated 

annual gross revenues of the company; 

or (ii) the consolidated assets of the 

company and all of its subsidiaries 

related to financial activities, as well as 

related to the ownership or control of 

insured depository institutions, 

represent 85 percent or more of the 

consolidated assets of the company.2

The Dodd-Frank Act requires the Board 

of Governors to establish the 

requirements for determining whether a 

company is ‘‘predominantly engaged in 

financial activities’’ for this purpose.3

The Council issued an advance notice 

of proposed rulemaking (the ‘‘ANPR’’) 

on October 6, 2010 (75 FR 61653), in 


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21638 Federal Register / Vol. 77, No. 70 / Wednesday, April 11, 2012 / Rules and Regulations 

4 In addition, the Council received two comment 

letters dated March 8, 2012, requesting a public 

hearing or public roundtables on the NPR and 

Proposed Guidance. These letters also reiterated 

earlier substantive comments on the NPR and 

Proposed Guidance by a number of the letters’ 

signatories. The writers acknowledged that these 

prior substantive comments were submitted and 

that the Council had received numerous comments 

to the NPR and Proposed Guidance on a wide range 

of concerns. In drafting the final rule and 

interpretive guidance, the Council has carefully 

considered all the comments received. Neither the 

Dodd-Frank Act nor the Administrative Procedure 

Act requires a public hearing on the NPR and 

Proposed Guidance prior to the issuance of the final 

rule and interpretive guidance. The letters 

requesting a hearing did not indicate why the 

opportunity to submit written comments was 

inadequate for commenters to participate fully in 

the rulemaking process. Accordingly, the Council 

has determined that a public hearing or roundtable 

is not necessary prior to adopting the final rule and 

interpretive guidance. 

5 In addition, one commenter recommended that 

the Council abandon this rulemaking entirely; the 

Council has declined to do so, for the reasons 

described below. Consistent with the Council’s 

intended approach, two other commenters 

recommended that the determination process be 

implemented as soon as possible. 

6Pursuant to section 170 of the Dodd-Frank Act, 

the Board of Governors is authorized to promulgate 

regulations on behalf of, and in consultation with, 

the Council setting forth the criteria for exempting 

certain types or classes of nonbank financial 

companies from supervision by the Board of 

Governors. See 12 U.S.C. 5370. 

7The Council notes that a foreign bank that is a 

bank holding company or that operates a branch or 

agency in the United States is subject to 

consolidated supervision by the Board of Governors 

and would be subject to the enhanced prudential 

standards to be adopted by the Board of Governors 

under section 165 of the Dodd-Frank Act, resolution 

planning requirements, and early remediation 

requirements to be adopted by the Board of 

Governors under section 166 of the Dodd-Frank Act 

if it has total consolidated worldwide assets of at 

least $50 billion. See 76 FR 67323, at 67326 (Nov. 

1, 2011) for a discussion of the application of 

resolution-planning requirements to foreign banks. 

A foreign bank that has a financial but not a 

banking presence in the United States may not be 

subject to consolidated supervision by the Board of 

Governors and consequently, may not be subject to 

these requirements, regardless of its size, unless the 

Council were to make a determination with respect 

to such company pursuant to section 113 of the 

Dodd-Frank Act. 

which it requested public comment on 

the application of the statutory factors 

that the Dodd-Frank Act requires the 

Council to consider in determining 

whether a nonbank financial company 

should be supervised by the Board of 

Governors and subject to prudential 

standards. The ANPR posed 15 

questions, all of which addressed the 

application of the statutory 

considerations that the Council must 

take into account in the process of 

determining whether a nonbank 

financial company should be subject to 

supervision by the Board of Governors 

and be subject to prudential standards 

(the ‘‘Determination Process’’). 

On January 26, 2011, the Council 

issued a notice of proposed rulemaking 

(the ‘‘First NPR’’) (76 FR 4555) through 

which it sought public comment 

regarding the specific criteria and 

analytic framework that the Council 

intends to apply in the Determination 

Process. The comment period for the 

First NPR closed on February 25, 2011. 

In response to comments that the 

Council received on the First NPR, on 

October 18, 2011, the Council issued a 

second notice of proposed rulemaking 

(the ‘‘NPR’’) and proposed interpretive 

guidance (the ‘‘Proposed Guidance’’) 

(76 FR 64264) to provide (i) additional 

details regarding the framework that the 

Council intends to use in the process of 

assessing whether a nonbank financial 

company could pose a threat to U.S. 

financial stability, and (ii) further 

opportunity for public comment on the 

Council’s proposed approach to the 

Determination Process. 

The Council received 41 comment 

letters in response to the NPR and 

Proposed Guidance, of which 12 were 

from companies or trade associations in 

the insurance industry, eight were from 

companies or trade associations in the 

asset management industry, seven were 

from other financial or business trade 

associations, four were from specialty 

finance companies, and 10 were from 

law firms, advocacy groups, think tanks, 

and individuals.4 (Comment letters are 

available online at http://www.

regulations.gov.) In addition to issuing 

the ANPR, the First NPR, and the NPR 

and Proposed Guidance for public 

comment, staff of Council members and 

their agencies met with financial 

industry representatives to discuss the 

proposals. Meeting participants 

generally reiterated the views expressed 

in their comment submissions. 

Commenters generally found that the 

NPR and Proposed Guidance provided 

helpful insight and transparency into 

the Council’s approach to the 

Determination Process. Many 

commenters applauded the inclusion of 

a three-stage process for review of 

nonbank financial companies and the 

inclusion of sample metrics for the 

Council’s analysis under its analytic 

framework. Some commenters suggested 

that the NPR and Proposed Guidance 

continued to provide an insufficient 

degree of certainty and transparency.5

As described below, the Council has 

carefully considered the comments 

received on the NPR and Proposed 

Guidance in developing the final rule 

and interpretive guidance. 

II. Comments on Scope and 

Implementation of Determination 

Authority 

A. Comments on Scope of Council 

Determinations 

Many commenters addressed the 

types of nonbank financial companies 

that should be considered for 

determinations. Many commenters 

representing particular segments of the 

financial industry suggested that 

nonbank financial companies operating 

in those segments do not pose a threat 

to U.S. financial stability and should not 

generally be subject to a determination. 

For example, commenters representing 

the insurance industry argued that the 

products and services of regulated, 

traditional insurance companies are 

highly substitutable and that these 

companies operate without significant 

leverage or reliance on short-term debt 

and are subject to high levels of existing 

regulatory scrutiny. Commenters 

representing the asset management 

industry contended that asset managers 

are unlikely to pose a threat to U.S. 

financial stability, and some noted that 

the legal distinction between investment 

advisers and the funds they manage 

make the prudential standards 

contemplated by section 165 of the 

Dodd-Frank Act an inappropriate 

mechanism for addressing any threat 

posed by such firms. Others commented 

on behalf of financial guaranty insurers, 

captive finance companies, money 

market funds, and the Federal Home 

Loan Banks. The Council’s 

determination with respect to a nonbank 

financial company will be based on an 

evaluation of whether the nonbank 

financial company meets the statutory 

standards, taking into account the 

statutory considerations set forth in 

section 113 of the Dodd-Frank Act. The 

Council does not intend to provide 

industry-based exemptions from 

potential determinations under section 

113 of the Dodd-Frank Act, but the 

Council intends to give these comments 

due consideration in the Determination 

Process.6

In contrast, some commenters argued 

that the standard for determinations 

should be low, so that many nonbank 

financial companies may be subject to a 

determination. Other commenters 

suggested that particular types of 

nonbank financial companies, such as 

companies that serve as primary dealers 

or foreign banking organizations that 

reorganize their operations and 

deregister as bank holding companies in 

order to avoid new capital and liquidity 

requirements should automatically be 

considered by the Council.7 As noted 

above, the Council’s determination with 

respect to a nonbank financial company 

will be based on an application of the 

statutory standards, taking into account 


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Federal Register / Vol. 77, No. 70 / Wednesday, April 11, 2012 / Rules and Regulations 21639 

the considerations set forth in section 

113 of the Dodd-Frank Act, to the facts 

regarding that nonbank financial 

company. 

As noted above under ‘‘Background,’’ 

Title I of the Dodd-Frank Act defines a 

‘‘nonbank financial company’’ as a 

domestic or foreign company that is 

‘‘predominantly engaged in financial 

activities,’’ with certain exceptions. The 

guidance notes that the Council intends 

to interpret the term ‘‘company’’ broadly 

with respect to nonbank financial 

companies and other companies in 

connection with section 113 of the 

Dodd-Frank Act, to include any 

corporation, limited liability company, 

partnership, business trust, association, 

or similar organization. In response to 

commenter concerns, the Council 

clarifies that it does not generally intend 

to encompass unincorporated 

associations within the definition of 

‘‘company.’’ One commenter suggested 

that the rule include a definition of 

‘‘company.’’ The Council has 

determined that adding this definition 

to the rule would not be consistent with 

the focus of the rule on issues of 

Council procedure and practice, but the 

Council’s intended interpretation of this 

term has been included in the 

interpretive guidance. Other 

commenters argued that the definition 

of ‘‘nonbank financial company’’ should 

include financial businesses owned by 

another company that engage in 

separate, unrelated financial 

transactions, or that open-end 

investment companies might not be 

included within the statutory definition 

of ‘‘nonbank financial company.’’ The 

Board of Governors has authority to 

issue regulations regarding the 

requirements for determining if a 

company is predominantly engaged in 

financial activities, and thus potentially 

a nonbank financial company, and has 

issued a proposed rule under this 

authority. 

B. Comments on Coordination With 

Other Regulatory Activities 

A number of commenters requested 

that the Council delay this rulemaking 

until other, related regulatory activities 

are completed. The other regulatory 

activities cited were (i) the requirements 

for determining if a company is 

‘‘predominantly engaged in financial 

activities’’ under section 102 of the 

Dodd-Frank Act; (ii) the adoption of 

enhanced prudential standards 

applicable under section 165 of the 

Dodd-Frank Act to nonbank financial 

companies subject to a Council 

determination; (iii) the rule regarding 

the establishment of an intermediate 

holding company under section 626 of 

the Dodd-Frank Act; (iv) the rules 

further defining ‘‘major swap 

participant’’ and ‘‘major security-based 

swap participant’’ under Title VII of the 

Dodd-Frank Act; (v) the Council’s 

regulations implementing the Freedom 

of Information Act (‘‘FOIA’’); (vi) safe 

harbors from Board of Governors 

supervision under section 170 of the 

Dodd-Frank Act; and (vii) 

recommendations of the Council for 

additional standards applicable to 

activities or practices under section 120 

of the Dodd-Frank Act. 

The regulatory activities cited by 

commenters are in various stages of the 

rulemaking process, including the 

Council’s FOIA regulations, which the 

Council adopted on April 3, 2012. The 

Council does not believe it is necessary 

or appropriate to postpone the adoption 

of this rule or the interpretive guidance 

until these other regulatory actions are 

completed. These rulemakings are not 

essential to the Council’s consideration 

of whether a nonbank financial 

company could pose a threat to U.S. 

financial stability, and the Council has 

the statutory authority to proceed with 

determinations under section 113 of the 

Dodd-Frank Act prior to the adoption of 

such rules. 

In addition, several commenters urged 

the Council to coordinate the issuance 

of the rule and interpretive guidance 

with G–20-mandated efforts being 

undertaken by international bodies, 

such as the Financial Stability Board 

and the International Association of 

Insurance Supervisors, or to postpone 

the Determination Process until broader 

U.S. and international financial reforms 

have been implemented. Council 

members are working closely with their 

international counterparts on a number 

of initiatives, including the process for 

identifying globally systemically 

important financial institutions and 

financial market infrastructures. At the 

same time, the Council’s determinations 

under section 113 of the Dodd-Frank 

Act are an important part of the U.S. 

financial reform process, and the 

Council believes it is important for this 

framework to be in place as soon as 

practicable. 

III. Description of the Rule and the 

Interpretive Guidance 

In developing the rule and 

interpretive guidance, the Council has 

carefully considered the comments 

received on the NPR and Proposed 

Guidance, as well as the language and 

legislative history of the Dodd-Frank 

Act. After this review, the Council is 

adopting the rule and interpretive 

guidance substantially as proposed, but 

with a number of clarifications in 

response to commenter concerns. 

The rule sets forth the procedures and 

practices for the Council’s 

determinations regarding nonbank 

financial companies, including the 

statutory considerations and procedures 

for information collection and hearings. 

The interpretive guidance, which is 

attached as an appendix to the rule, 

addresses, among other things— 

• Key terms and concepts related to 

the Council’s determination authority, 

including ‘‘material financial distress’’ 

and ‘‘threat to financial stability’’; 

• The uniform quantitative thresholds 

that the Council intends to use to 

identify nonbank financial companies 

for further evaluation; 

• The six-category framework that the 

Council intends to use to consider 

whether a nonbank financial company 

meets either of the statutory standards 

for a determination, including examples 

of quantitative metrics for assessing 

each category; and 

• The process that the Council 

intends to follow when considering 

whether to subject a nonbank financial 

company to supervision by the Board of 

Governors and prudential standards. 

To foster transparency with respect to 

the Determination Process, the rule and 

interpretive guidance provide a detailed 

description of (i) the profile of those 

nonbank financial companies that the 

Council likely will evaluate for potential 

determination, so as to minimize 

uncertainty among nonbank financial 

companies, market participants, and 

other members of the public, and (ii) the 

factors that the Council intends to use 

when analyzing companies at various 

stages of the Determination Process, 

including examples of the metrics that 

the Council intends to use when 

evaluating a nonbank financial company 

under the six-category analytic 

framework. The Council’s ultimate 

assessment of whether a nonbank 

financial company meets a statutory 

standard for determination will be based 

on an evaluation of each of the statutory 

considerations, taking into account facts 

and circumstances relevant to each 

nonbank financial company. 

The Council has numerous authorities 

and tools to carry out its statutory duty 

to monitor the financial stability of the 

United States. In addition to the 

Council’s determination authority under 

section 113 of the Dodd-Frank Act, the 

Council has the authority to make 

recommendations to primary financial 

regulatory agencies to apply new or 

heightened standards and safeguards for 

a financial activity or practice 

conducted by bank holding companies 

or nonbank financial companies under 


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21640 Federal Register / Vol. 77, No. 70 / Wednesday, April 11, 2012 / Rules and Regulations 

8See 12 U.S.C. 5330(a). 

9See 12 U.S.C. 5463(a)(1). 

10This list reflects the statutory considerations 

applicable to a determination with respect to a U.S. 

nonbank financial company. The Council is 

required to consider corresponding factors in 

making a determination with respect to a foreign 

nonbank financial company. 

11While one commenter suggested that the 

Council should disregard the Second Determination 

Standard, the Council intends to evaluate nonbank 

financial companies under either the First or the 

Second Determination Standard, in accordance 

with section 113 of the Dodd-Frank Act, as the 

Council deems appropriate. 

the jurisdiction of such agencies if the 

Council determines that the conduct, 

scope, nature, size, scale, concentration, 

or interconnectedness of such activity or 

practice could create or increase the risk 

of significant liquidity, credit, or other 

problems spreading among bank 

holding companies and nonbank 

financial companies, U.S. financial 

markets, or low-income, minority, or 

underserved communities.8 In addition, 

the Council may designate financial 

market utilities and payment, clearing 

and settlement activities that the 

Council determines are, or are likely to 

become, systemically important.9 The 

Council expects that its response to any 

potential threat to financial stability will 

be based on an assessment of the 

circumstances. 

Pursuant to section 115(a) of the 

Dodd-Frank Act, the Council may also 

make recommendations to the Board of 

Governors concerning the establishment 

and refinement of prudential standards 

and reporting and disclosure 

requirements applicable to nonbank 

financial companies supervised by the 

Board of Governors pursuant to section 

113 of the Dodd-Frank Act. In making 

such recommendations, the Dodd-Frank 

Act also authorizes the Council 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 Council deems appropriate. In 

addition, section 165 of the Dodd-Frank 

Act gives the Board of Governors the 

ability to tailor the application of the 

prudential standards on its own. 

Several commenters supported the 

recognition in the NPR of the Council’s 

numerous authorities and tools to carry 

out its statutory duties. Commenters 

also urged the Council to perform, in 

connection with each potential 

determination with respect to a nonbank 

financial company, a comparative costbenefit analysis of the tools available to 

the Council to mitigate any identified 

threat posed by the company. Some 

commenters further suggested that the 

Council provide this analysis to the 

nonbank financial company, explaining 

why a determination is the best 

available tool to mitigate the threat. 

Section 113 of the Dodd-Frank Act sets 

forth the factors that the Council must 

consider in determining whether to 

subject a nonbank financial company to 

Board of Governors supervision and 

prudential standards. The relative cost 

and benefit of such a determination is 

not one of these statutory 

considerations. Therefore, while the 

Council expects to consider its available 

regulatory tools in addressing any 

potential threat to financial stability, the 

Council does not intend to conduct costbenefit analyses in making 

determinations with respect to 

individual nonbank financial 

companies. 

The rule and interpretive guidance, as 

well as the Council’s responses to the 

comments received, are discussed in 

greater detail below. 

A. Statutory Determination Standards 

and Considerations 

Section 113 of the Dodd-Frank Act 

authorizes the Council to subject a 

nonbank financial company to 

supervision by the Board of Governors 

and prudential standards if the Council 

determines that (i) material financial 

distress at the nonbank financial 

company could pose a threat to the 

financial stability of the United States 

(the ‘‘First Determination Standard’’), or 

(ii) the nature, scope, size, scale, 

concentration, interconnectedness, or 

mix of the activities of the nonbank 

financial company could pose a threat 

to the financial stability of the United 

States (the ‘‘Second Determination 

Standard’’). 

Pursuant to the provisions of the 

Dodd-Frank Act, the Council is required 

to consider the following statutory 

considerations when evaluating whether 

to make this determination with respect 

to a nonbank financial company: 10

(A) The extent of the leverage of the 

company; 

(B) The extent and nature of the offbalance-sheet exposures of the 

company; 

(C) The extent and nature of the 

transactions and relationships of the 

company with other significant nonbank 

financial companies and significant 

bank holding companies; 

(D) 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 U.S. financial system; 

(E) 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; 

(F) 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; 

(G) The nature, scope, size, scale, 

concentration, interconnectedness, and 

mix of the activities of the company; 

(H) The degree to which the company 

is already regulated by one or more 

primary financial regulatory agencies; 

(I) The amount and nature of the 

financial assets of the company; 

(J) The amount and types of the 

liabilities of the company, including the 

degree of reliance on short-term 

funding; and 

(K) Any other risk-related factors that 

the Council deems appropriate. 

The Council intends to take into 

account all of the statutory 

considerations, separately and in 

conjunction with each other, when 

determining whether either of the 

statutory standards for determination 

has been met. The Council included 

each of the statutory considerations in 

the NPR and has retained this text in the 

rule. The interpretive guidance provides 

detail regarding the manner in which 

the Council intends to assess nonbank 

financial companies under the First and 

Second Determination Standards.11 The 

interpretive guidance sets forth 

definitions of the terms ‘‘material 

financial distress,’’ which is relevant to 

the First Determination Standard, and 

‘‘threat to the financial stability of the 

United States,’’ which is relevant to 

both determination standards. 

Commenters requested further 

clarification of the Council’s 

interpretation of certain relevant 

definitions underlying the First and 

Second Determination Standards, such 

as the addition of quantitative metrics to 

measure material financial distress and 

a threat to U.S. financial stability. In 

addition, two commenters 

recommended that ‘‘threat to the 

financial stability of the United States’’ 

be defined narrowly, as a high threshold 

for the Council’s determinations. The 

Council believes that these definitions 

accurately reflect the statutory 

requirements and the nature of the 

threat that the Council’s authority under 

section 113 of the Dodd-Frank Act seeks 

to mitigate. The interpretive guidance 

therefore includes these definitions as 

proposed. 


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Federal Register / Vol. 77, No. 70 / Wednesday, April 11, 2012 / Rules and Regulations 21641 

The interpretive guidance also 

describes three channels the Council 

believes are most likely to facilitate the 

transmission of the negative effects of a 

nonbank financial company’s material 

financial distress or activities to other 

firms and markets, thereby posing a 

threat to U.S. financial stability: (i) 

Exposure of creditors, counterparties, 

investors, or other market participants 

to a nonbank financial company; (ii) 

disruptions caused by the liquidation of 

a nonbank financial company’s assets; 

and (iii) the inability or unwillingness 

of a nonbank financial company to 

provide a critical function or service 

relied upon by market participants and 

for which there are no ready substitutes. 

A number of commenters requested 

further clarification of the three 

transmission channels. These 

commenters suggested that the Council 

provide identifying metrics and explicit 

links between the channels and the 

statutory considerations. To address 

these requests, the interpretive guidance 

provides some additional clarification 

describing how the Council expects its 

assessments under the First and Second 

Determination Standards to relate to the 

transmission channels and the statutory 

considerations. However, due to the 

unique threat that each nonbank 

financial company may pose to U.S. 

financial stability and the qualitative 

nature of the inquiry under the statutory 

considerations, it is not possible to 

provide broadly applicable metrics 

defining these channels or to identify 

universally applicable links between the 

channels and the statutory 

considerations. 

Two commenters also objected to the 

inclusion in the third transmission 

channel of a nonbank financial 

company’s ability or willingness to 

provide a critical function or service, 

arguing that regulators should not 

interfere with companies’ business 

decisions in this regard. Substitutability 

is an important consideration for 

evaluating the importance of a financial 

company. If a nonbank financial 

company is the sole provider, or one of 

a small number of providers, of a critical 

market function or service, the Council 

believes that it is appropriate to 

consider the impact a decision by the 

company to cease providing that 

function or service could have on other 

market participants or market 

functioning and, thereby, on U.S. 

financial stability. 

B. Analytic Framework for 

Determinations 

As described in the Proposed 

Guidance, the Council has incorporated 

the statutory considerations for 

evaluating whether a nonbank financial 

company meets either the First or 

Second Determination Standard into an 

analytic framework consisting of the 

following six categories: (i) Size, (ii) 

interconnectedness, (iii) substitutability, 

(iv) leverage, (v) liquidity risk and 

maturity mismatch, and (vi) existing 

regulatory scrutiny. Three of these six 

categories seek to assess the potential 

impact of a nonbank financial 

company’s financial distress on the 

broader economy: size, 

interconnectedness, and substitutability. 

The remaining three categories seek to 

assess the vulnerability of a nonbank 

financial company to financial distress: 

leverage, liquidity risk and maturity 

mismatch, and existing regulatory 

scrutiny. The interpretive guidance 

contains the table from the Proposed 

Guidance that illustrates the 

relationship between the 10 statutory 

considerations and the six framework 

categories. 

Most commenters addressed these six 

categories either in the context of a 

particular financial sector (as described 

above under ‘‘Comments on Scope and 

Implementation of Determination 

Authority’’) or with respect to the 

proposed uniform quantitative 

thresholds that the Council intends to 

use to identify nonbank financial 

companies for further evaluation (as 

described below under ‘‘The Stage 1 

Thresholds’’). Of the commenters that 

specifically addressed the analytic 

framework, several recommended that 

substitutability either be narrowed to 

focus on nonbank financial companies 

that provide a critical function or 

service, or be broadened to encompass 

circumstances such as oligopolies and 

potential future business changes. The 

Council is adopting the description of 

substitutability as proposed, because the 

Council believes it accurately delineates 

the primary factors that may cause a 

lack of substitutability to pose a threat 

to U.S. financial stability. 

Several commenters also urged the 

Council to give significant weight in its 

evaluations to existing regulatory 

scrutiny. In particular, one commenter 

argued that a nonbank financial 

company operating internationally 

should only have one lead supervisor, to 

ensure consistent supervision. Several 

other commenters advised that the 

effectiveness of existing regulation, or a 

consideration of existing regulations in 

light of the potential threat posed by a 

particular nonbank financial company, 

should be evaluated. As existing 

regulatory scrutiny is one of the 

statutory considerations, the Council 

intends to evaluate this factor, together 

with each of the other statutory 

considerations, in connection with any 

determination. In response to these 

comments, the interpretive guidance has 

been revised to clarify that the Council 

will consider both the existence and the 

effectiveness of consolidated 

supervision of a nonbank financial 

company. 

A number of commenters provided 

detailed recommendations regarding the 

analysis of companies within particular 

industries under the six-category 

analytic framework in Stages 2 and 3. 

For example, commenters highlighted 

the differences between insurance 

companies and other types of nonbank 

financial companies. These comments 

addressed issues such as the importance 

of focusing on the unregulated, 

nontraditional activities undertaken by 

insurance companies, rather than on 

regulated activities. One commenter 

suggested that the analysis of 

interconnectedness of insurance 

companies should focus on 

interconnectedness within a financial 

services conglomerate and between a 

U.S. insurance company and foreign 

entities. Others recommended technical 

changes to the types of information 

described in the interpretive guidance 

that the Council may consider in 

evaluating insurance companies. With 

respect to all the comments on industryspecific analyses, the evaluation of any 

nonbank financial company under the 

six-category framework will be 

company-specific, and the description 

in the interpretive guidance is intended 

to indicate the types of information that 

the Council will consider. The Council 

has not revised the interpretive 

guidance to address these comments but 

intends to consider such factors, where 

appropriate. 

In response to a commenter, the 

interpretive guidance clarifies that the 

risk of interest rate fluctuations and 

reinvestment risk may be considered in 

evaluating maturity mismatch of life 

insurance companies. 

C. Three-Stage Process for Evaluating 

Nonbank Financial Companies 

1. Overview of the Three-Stage Process 

The interpretive guidance provides a 

detailed description of the three-stage 

process that the Council intends to use 

to identify nonbank financial companies 

for determinations in non-emergency 

situations. Each stage of the 

Determination Process involves an 

analysis based on an increasing amount 

of information to determine whether a 

nonbank financial company meets the 

First or Second Determination Standard. 

The first stage of the process (‘‘Stage 

1’’) is designed to narrow the universe 


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12The Council believes that quantitative 

thresholds measuring substitutability and existing 

regulatory scrutiny would not be appropriate and 

intends to rely on company-specific qualitative and 

quantitative analyses of these factors in Stages 2 

and 3. 

of nonbank financial companies to a 

smaller set of nonbank financial 

companies. In Stage 1, the Council 

intends to evaluate nonbank financial 

companies by applying uniform 

quantitative thresholds that are broadly 

applicable across the financial sector to 

a large group of nonbank financial 

companies. These Stage 1 thresholds 

represent the framework categories that 

are more readily quantified: Size, 

interconnectedness, leverage, and 

liquidity risk and maturity mismatch.12

A nonbank financial company would be 

subject to additional review if it meets 

both the size threshold and any one of 

the other quantitative thresholds. The 

Council believes that the Stage 1 

thresholds will help a nonbank financial 

company predict whether such 

company will be subject to additional 

review by the Council. Stage 1 does not 

reflect a determination by the Council 

that the nonbank financial companies 

identified during Stage 1 meet one of 

the Determination Standards. Rather, 

Stage 1 is intended to identify nonbank 

financial companies that should be 

subject to further evaluation in 

subsequent stages of review. 

In the second stage of the process 

(‘‘Stage 2’’), the Council will conduct a 

comprehensive analysis, using the sixcategory analytic framework, of the 

potential for the nonbank financial 

companies identified in Stage 1 to pose 

a threat to U.S. financial stability. In 

general, this analysis will be based on 

a broad range of quantitative and 

qualitative information available to the 

Council through existing public and 

regulatory sources, including industryand company-specific metrics beyond 

those analyzed in Stage 1, and any 

information voluntarily submitted by 

the company. 

Based on the analysis conducted 

during Stage 2, the Council intends to 

identify the nonbank financial 

companies that the Council believes 

merit further review in the third stage 

(‘‘Stage 3’’). The Council will send a 

notice of consideration to each nonbank 

financial company that will be reviewed 

in Stage 3, and will give those nonbank 

financial companies an opportunity to 

submit materials within a time period 

specified by the Council (which will be 

not less than 30 days). Stage 3 will build 

on the Stage 2 analysis using 

quantitative and qualitative information 

collected directly from the nonbank 

financial company, generally by the 

Office of Financial Research (the 

‘‘OFR’’), in addition to the information 

considered during Stages 1 and 2. The 

Council will determine whether to 

subject a nonbank financial company to 

Board of Governors supervision and 

prudential standards based on the 

results of the analyses conducted during 

this three-stage review process. 

As discussed in the interpretive 

guidance, the Council does not believe 

that a determination decision can be 

reduced to a formula. Each 

determination will be made based on a 

company-specific evaluation and an 

application of the standards and 

considerations set forth in section 113 of 

the Dodd-Frank Act, and taking into 

account qualitative and quantitative 

information that the Council deems 

relevant to a particular nonbank 

financial company. 

2. Stage 1 

As described in the interpretive 

guidance, in Stage 1, the Council 

intends to apply quantitative thresholds 

to a broad group of nonbank financial 

companies to identify a set of nonbank 

financial companies that merit further 

evaluation. 

Many commenters commended the 

inclusion of Stage 1 in the Proposed 

Guidance. A smaller number of 

commenters objected to the Stage 1 

process generally, stating either that the 

thresholds will capture too many or too 

few nonbank financial companies, or 

that the thresholds are not focused on 

activities that could cause a threat to 

financial stability. In addition, several 

commenters proposed that nonbank 

financial companies should be subject 

to further review only if they exceed at 

least two Stage 1 thresholds, rather than 

only one, in addition to the total 

consolidated assets threshold (described 

below). One commenter suggested that 

Stages 1 and 2 could be combined in 

instances when it is clear that a 

nonbank financial company may meet 

either the First or Second Determination 

Standard. Based on its analysis, the 

Council believes the Stage 1 approach as 

proposed, with certain clarifications, is 

appropriate. Stage 1 is not intended to 

identify nonbank financial companies 

for a final determination. Instead, Stage 

1 is a tool that the Council, nonbank 

financial companies, market 

participants, and other members of the 

public may use to assess whether a 

nonbank financial company will be 

subject to further evaluation by the 

Council. Any nonbank financial 

company that is selected for further 

evaluation during Stage 1 will be 

assessed more comprehensively during 

Stage 2 and, if appropriate, Stage 3. In 

addition to its other benefits, the 

careful, company-specific analysis in 

Stages 2 and 3 avoids any possible ‘‘cliff 

effects’’ for nonbank financial 

companies that narrowly exceed the 

Stage 1 thresholds. 

The Council considered several 

approaches for Stage 1 other than the 

thresholds-based approach described in 

the interpretive guidance. Alternatives 

that were considered included a 

weighting of various metrics according 

to relative importance, and a multi-step, 

quantitative analysis under which 

progression through the analysis would 

have required meeting certain 

thresholds in each step. These 

approaches attempted to tailor the Stage 

1 analysis more specifically to the 

various types of nonbank financial 

companies and to customize the factors 

to address narrower concepts of a threat 

to U.S. financial stability. In contrast to 

these alternative approaches, the 

Council determined that the thresholdsbased approach set forth in the 

interpretive guidance offers greater 

transparency, consistency, and ease of 

application for the Council, nonbank 

financial companies, market 

participants, and other members of the 

public, and requires less reliance on 

subjective assumptions. A tailored 

analysis will be performed, potentially 

using the approaches described above, 

with respect to individual nonbank 

financial companies, as appropriate, in 

Stages 2 and 3. This approach will 

enable the Council to engage in a 

flexible, company-specific analysis that 

will reflect the unique risks posed by 

each nonbank financial company. 

In all instances, the Council reserves 

the right, at its discretion, to subject any 

nonbank financial company to further 

review if the Council believes that 

further analysis of the company is 

warranted to determine if the company 

could pose a threat to U.S. financial 

stability, irrespective of whether such 

company meets the thresholds in Stage 

1. Several commenters commended the 

Council’s reservation of authority, while 

others suggested that the Council’s 

reservation of authority will generate 

uncertainty or was otherwise 

inappropriate. As noted above, the Stage 

1 thresholds are intended only to 

identify nonbank financial companies 

for further evaluation. However, the 

Council recognizes that all relevant data 

are likely not available to assess all 

nonbank financial companies using the 

Stage 1 quantitative thresholds and that 

the thresholds are an imperfect 

mechanism to identify all nonbank 

financial companies of which further 

review is warranted. While the 

thresholds were designed to be uniform, 


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transparent, and readily calculable by 

the Council, nonbank financial 

companies, market participants, and 

other members of the public, the 

Council also recognizes that the 

thresholds may not adequately measure 

unique risks posed by particular 

nonbank financial companies. 

Therefore, the Council retains its 

discretion to consider nonbank financial 

companies not identified by the Stage 1 

thresholds for any reason, including a 

lack of available data in Stage 1. 

Commenters also suggested that the 

Council should provide an explanation 

of the basis for the Council’s evaluation 

of any nonbank financial company that 

is reviewed in Stage 2 but did not 

exceed the Stage 1 thresholds. Any 

nonbank financial company that the 

Council determines should be reviewed 

during Stage 3 will receive notice of this 

review. If the Council determines by 

vote to subject a nonbank financial 

company to a proposed determination, 

the Council will provide the nonbank 

financial company with notice and an 

explanation of the basis of the proposed 

determination, as described below. 

Several commenters addressed the 

collection of data from nonbank 

financial companies in Stage 1. While 

some commenters sought clarification of 

how the Council would collect data for 

Stage 1, particularly in cases where the 

data underlying the Stage 1 thresholds 

is not available, others urged the 

Council expressly to reserve the right to 

collect data from nonbank financial 

companies in Stage 1, to avoid any 

failure to identify a nonbank financial 

company that should be evaluated 

further. A fundamental purpose of Stage 

1 is to narrow the universe of nonbank 

financial companies, based on 

information available to the Council 

through existing public and regulatory 

sources, to a smaller set of companies 

that will be subject to company-specific 

evaluation in Stage 2. The Council 

recognizes that all relevant data are 

likely not available to assess all 

nonbank financial companies using the 

Stage 1 thresholds. Therefore, the 

Council may subject a nonbank 

financial company to further review in 

Stage 2 if the Council believes that 

further analysis is warranted, for any 

reason, to determine if the company 

could pose a threat to U.S. financial 

stability. 

3. The Stage 1 Thresholds 

In Stage 1, the Council intends to 

apply six quantitative thresholds to a 

broad group of nonbank financial 

companies. The thresholds are— 

• $50 billion in total consolidated 

assets; 

• $30 billion in gross notional credit 

default swaps outstanding for which a 

nonbank financial company is the 

reference entity; 

• $3.5 billion of derivative liabilities; 

• $20 billion in total debt 

outstanding; 

• 15 to 1 leverage ratio of total 

consolidated assets (excluding separate 

accounts) to total equity; and 

• 10 percent short-term debt ratio of 

total debt outstanding with a maturity of 

less than 12 months to total 

consolidated assets (excluding separate 

accounts). 

A nonbank financial company will be 

evaluated in Stage 2 if it meets both the 

total consolidated assets threshold and 

any one of the other thresholds. 

Many commenters provided detailed 

recommendations regarding the six 

Stage 1 thresholds. These comments 

generally fall into three categories: (i) 

The level of a threshold should be 

changed; (ii) the method of calculating 

a threshold should be refined; and (iii) 

a threshold generally is inappropriate. A 

smaller number of commenters 

suggested new Stage 1 thresholds. 

Commenters suggested that the 

Council tailor the thresholds by 

industry to provide a more accurate 

indication of the threat to U.S. financial 

stability that could be posed by a 

nonbank financial company in a 

particular industry. The Council 

recognizes that the quantitative 

thresholds it has identified for 

application during Stage 1 may not 

provide a comprehensive means to 

identify nonbank financial companies 

for further review across all financial 

industries and companies. However, the 

Stage 1 thresholds provide a reasonable 

set of measures for identifying nonbank 

financial companies that, in general, 

warrant further review. In addition, 

because many nonbank financial 

companies engage in financial activities 

across multiple segments of the 

financial markets, the application of 

specialized industry-specific thresholds 

to nonbank financial companies is not 

generally useful. Industry- and 

company-specific considerations are 

better evaluated during Stages 2 and 3, 

when more detailed information can be 

collected and more tailored analysis can 

be performed. 

Several commenters requested 

additional information on how the Stage 

1 thresholds were selected and 

suggested alternative measures that 

could be used. The Council selected the 

Stage 1 thresholds based on their 

applicability to nonbank financial 

companies that operate in diverse 

financial industries and because the 

data underlying these thresholds for a 

broad range of nonbank financial 

companies are generally available from 

existing public and regulatory sources. 

The Council reviewed distributions of 

various samples of nonbank financial 

companies and bank holding companies 

to inform its judgment regarding the 

appropriate thresholds and their 

quantitative levels. As discussed in the 

interpretive guidance, the Council also 

considered historical testing of the 

thresholds to assess whether they would 

have captured nonbank financial 

companies that encountered material 

financial distress during the financial 

crisis of 2007–2008. In this review, the 

Council focused separately on the 

period immediately before the crisis and 

also a number of years preceding it. 

While some commenters argued that 

historical analyses are not a sufficient 

justification for determining appropriate 

levels of thresholds, this approach, 

when combined with other analytical 

methods, can be a helpful tool for 

evaluating potential thresholds. After 

considering the comments on the Stage 

1 thresholds, including those 

recommending the elimination of 

particular thresholds, the Council has 

determined to finalize the thresholds 

largely as proposed. The Stage 1 

thresholds and their levels reflect the 

collective judgment of the Council 

members regarding the appropriate 

thresholds and their levels, in light of 

the statutory standards and 

considerations and an extensive review 

of applicable data and various analyses. 

The Stage 1 thresholds do not reflect a 

determination that the identified 

nonbank financial companies meet one 

of the Determination Standards, or that 

nonbank financial companies that do 

not meet the thresholds will not be 

designated. Rather, they are designed to 

identify nonbank financial companies 

for further evaluation based on the 

statutory standards and considerations. 

While the Council will apply the 

Stage 1 thresholds to all types of 

nonbank financial companies, 

including, to the extent that the relevant 

data are available, to financial 

guarantors, asset management 

companies, private equity firms, and 

hedge funds, these and other types of 

companies may pose risks that are not 

well-measured by the quantitative 

thresholds approach. 

With respect to hedge funds and 

private equity firms in particular, the 

Council intends to apply the Stage 1 

thresholds, but recognizes that less data 

are generally available about these 

companies than about certain other 

types of nonbank financial companies. 

Beginning in June 2012, advisers to 


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13See 17 CFR 49.17. 

hedge funds and private equity firms 

and commodity pool operators and 

commodity trading advisors will be 

required to file Form PF with the 

Securities and Exchange Commission 

(‘‘SEC’’) or the Commodity Futures 

Trading Commission (‘‘CFTC’’), as 

applicable, on which form such 

companies will make certain financial 

disclosures. Using these and other data, 

the Council will consider whether to 

establish an additional set of metrics or 

thresholds tailored to evaluate hedge 

funds and private equity firms and their 

advisers. 

In addition, the Council, its member 

agencies, and the OFR are analyzing the 

extent to which there are potential 

threats to U.S. financial stability arising 

from asset management companies. This 

analysis is considering what threats 

exist, if any, and whether such threats 

can be mitigated by subjecting such 

companies to Board of Governors 

supervision and prudential standards, 

or whether they are better addressed 

through other regulatory measures. The 

Council may develop additional 

guidance regarding potential metrics 

and thresholds relevant to 

determinations regarding asset 

managers, as appropriate. Commenters 

voiced both support for and opposition 

to the implementation of new metrics 

and thresholds applicable to asset 

managers. While the Council intends to 

address such issues at a later date, 

consistent with the intention described 

above not to provide exemptions under 

section 113 of the Dodd-Frank Act for 

any type of nonbank financial company, 

the Council intends to evaluate asset 

managers under the current interpretive 

guidance. 

Generally, as reporting requirements 

evolve and new information about 

certain industries and nonbank financial 

companies become available, the 

Council expects to review the 

quantitative thresholds as appropriate 

based on this new information. For 

example, the Council may consider 

credit exposure data proposed to be 

collected under section 165 of the DoddFrank Act by the Federal Deposit 

Insurance Corporation and the Board of 

Governors. Similarly, pursuant to 

reporting and disclosure requirements 

being implemented under section 728 of 

the Dodd-Frank Act,13 the Council may 

consider swaps information reported to 

swap data repositories. 

The Council recognizes that the Stage 

1 threshold to measure a nonbank 

financial company’s derivative 

liabilities captures only the current 

exposure, rather than the current and 

potential future exposure created by the 

nonbank financial company’s 

outstanding derivatives. The SEC and 

CFTC have proposed rules to further 

define the terms ‘‘major swap 

participant’’ (‘‘MSP’’) and ‘‘major 

security-based swap participant’’ 

(‘‘MSBSP’’) that contain a methodology 

to measure the potential future exposure 

created by an entity’s outstanding 

derivatives, with respect to certain 

institutions. 

Once the final rules regarding 

reporting of data on swaps and securitybased swaps come into effect, and data 

have been collected pursuant to those 

rules, the Council may revisit this Stage 

1 threshold based on factors such as a 

nonbank financial company’s current 

and potential future exposure from its 

outstanding derivatives for purposes of 

determining whether some or all MSPs, 

MSBSPs, or other nonbank financial 

companies that are subject to the rules 

will be subject to further examination in 

Stage 2. 

In addition, in response to comments, 

the Council has made several clarifying 

changes to the interpretive guidance 

with respect to the Stage 1 thresholds. 

The Proposed Guidance included a 

‘‘loans and bonds outstanding’’ 

threshold of $20 billion. A number of 

commenters requested a clarification of 

the types of obligations and instruments 

that would be included in the 

calculation of this threshold. In 

response to these comments, the 

Council has renamed this threshold 

‘‘total debt outstanding.’’ The 

interpretive guidance now also specifies 

that this threshold will be defined 

broadly and regardless of maturity to 

include loans, bonds, repurchase 

agreements, commercial paper, 

securities lending arrangements, surplus 

notes (for insurance companies), and 

other forms of indebtedness. The 

interpretive guidance has also been 

revised to clarify that this definition of 

‘‘total debt outstanding’’ will be used in 

calculating the short-term debt ratio 

threshold. 

In response to questions from two 

commenters regarding the Council’s 

data source for the threshold relating to 

credit default swaps outstanding, the 

Council currently intends to calculate 

this threshold using data available 

through the Trade Information 

Warehouse, which is operated by a 

subsidiary of the Depository Trust & 

Clearing Corporation. If other sources 

for this data become available, the 

Council may use those sources instead 

of, or in addition to, this source. 

Further, to respond to comments, the 

interpretive guidance clarifies that in 

calculating the derivative liabilities 

threshold for nonbank financial 

companies that disclose the effects of 

master netting agreements and cash 

collateral held with the same 

counterparty on a net basis, the Council 

intends to calculate derivative liabilities 

after taking into account the effects of 

these arrangements. For nonbank 

financial companies that do not disclose 

the effects of these arrangements, 

derivative liabilities will equal the fair 

value of derivative contracts in a 

negative position. For Stages 2 and 3, 

the impact of netting will be considered 

as appropriate. 

Several commenters suggested that 

embedded derivatives be excluded from 

the definition of derivative liabilities, 

particularly for insurance companies or 

insurance products. Under statutory 

accounting principles (‘‘SAP’’), 

derivative features within insurance 

products are not accounted for 

separately from the host contract. Under 

generally accepted accounting 

principles in the United States 

(‘‘GAAP’’), derivative features that are 

combined with traditional insurance 

products may be accounted for 

separately and included in a company’s 

derivative liabilities, depending on 

whether the contract as a whole is 

carried at fair value and other criteria. 

The Council is cognizant of these 

differences between reporting under 

GAAP and SAP. Embedded derivatives 

will be included in the calculation of 

the Stage 1 derivative liabilities 

threshold, in accordance with GAAP, 

when such information is available. The 

Council will, as appropriate, assess 

embedded derivatives in Stages 2 and 3 

with respect to particular nonbank 

financial companies. The relative 

importance of embedded derivatives 

tied to insurance products will depend 

on their type and how they may 

contribute to the risk posed by a 

nonbank financial company, regardless 

of how they are reported. 

A number of commenters questioned 

how the Council will calculate the Stage 

1 thresholds for asset managers and 

investment advisers. The Council has 

included in the interpretive guidance a 

clarification that while the Council 

expects that its determinations will 

apply to individual legal entities, the 

Council has authority to assess nonbank 

financial companies in a manner that 

addresses the statutory considerations 

and such other factors as the Council 

deems appropriate. For example, in 

applying the Stage 1 thresholds to funds 

(whether or not they are registered 

investment companies), the interpretive 

guidance states that the Council may 

consider the aggregate risks posed by 

separate funds that are managed by the 


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Federal Register / Vol. 77, No. 70 / Wednesday, April 11, 2012 / Rules and Regulations 21645 

14See 12 U.S.C. 5311(a)(6). 

same adviser, particularly if the funds’ 

investments are identical or highly 

similar. When applying the Stage 1 

thresholds to an asset manager, the 

Council’s analysis will appropriately 

reflect the distinct nature of assets 

under management compared to the 

asset manager’s own assets. As 

discussed above, the Council may in the 

future issue additional guidance 

regarding additional metrics and 

thresholds, potentially including factors 

related to assets under management, 

regarding asset managers. 

With respect to the application of the 

Stage 1 thresholds to foreign nonbank 

financial companies, several 

commenters requested that the 

thresholds be calculated based solely on 

the companies’ U.S. operations. To 

respond to this request, the interpretive 

guidance specifies that for purposes of 

evaluating any U.S. nonbank financial 

company, the Council intends to apply 

each of the Stage 1 thresholds based on 

the global assets, liabilities and 

operations of the company and its 

subsidiaries. In contrast, for foreign 

nonbank financial companies, the 

Council intends to calculate the Stage 1 

thresholds based solely on the U.S. 

assets, liabilities and operations of the 

foreign nonbank financial company and 

its subsidiaries. 

Several commenters also suggested 

that a nonbank financial company’s 

subsidiaries should not be included in 

the Council’s evaluation of the 

company, including for purposes of 

calculating the Stage 1 thresholds. 

Similarly, these commenters requested 

that the Stage 1 thresholds, as applied 

to foreign nonbank financial companies, 

should exclude the operations of any 

U.S. subsidiary that meets the definition 

of ‘‘U.S. nonbank financial company.’’ 

The Dodd-Frank Act requires the 

Council to consider subsidiaries of 

nonbank financial companies in its 

analysis, and thus, the references to 

subsidiaries in the rule and interpretive 

guidance include subsidiaries. This 

conclusion is based in part on the 

statutory definition of ‘‘nonbank 

financial company,’’ which is based on 

a calculation of the revenues or assets of 

the relevant company ‘‘and all of its 

subsidiaries.’’ 14 Further, in light of the 

purposes of section 113 of the DoddFrank Act and the broad statutory 

considerations set forth in that 

provision, and the types of prudential 

standards to which nonbank financial 

companies subject to Council 

determinations are subject, a meaningful 

analysis must include not only a 

nonbank financial company’s own 

operations, but also those of its 

subsidiaries. To determine whether a 

subsidiary of a nonbank financial 

company should be included for 

purposes of calculating the Stage 1 

thresholds, the interpretive guidance, as 

described below, specifies that the 

Council intends generally to apply the 

Stage 1 thresholds using applicable 

accounting standards or such other data 

as are available to the Council. 

Numerous commenters suggested that 

the levels of the Stage 1 thresholds 

should be adjusted periodically over 

time, based on indexes such as inflation 

or economic growth. The Council 

believes that automatic adjustments to 

the threshold levels based on one or 

more particular indexes such as 

inflation could result in threshold levels 

that do not indicate the potential for a 

nonbank financial company to pose a 

threat to financial stability. Therefore, 

the interpretive guidance states that the 

Council intends to review the levels of 

the Stage 1 thresholds that are specified 

in dollars at least every five years and 

to adjust those thresholds as the Council 

may deem advisable. 

A number of commenters requested a 

clarification of the calculation date for 

the Stage 1 thresholds, with several 

proposing that the calculations be based 

on multi-period averages to reduce 

volatility and mitigate the effects of any 

unusual or one-time items. The Council 

recognizes that certain events that may 

cause a nonbank financial company 

briefly to exceed one or more Stage 1 

thresholds may not indicate an 

increased threat to U.S. financial 

stability. However, because such an 

analysis is by its nature fact-specific, the 

Council believes that the appropriate 

framework for consideration of such 

factors is in Stage 2. Therefore, the 

interpretive guidance provides that the 

Council intends to reapply the Stage 1 

thresholds using the most recently 

available data on a quarterly basis, or 

less frequently for nonbank financial 

companies with respect to which 

quarterly data are unavailable. 

Several commenters also requested a 

clarification of the financial reporting 

standards that the Council will apply in 

Stage 1. In response to this request, the 

Council has revised the interpretive 

guidance to provide that the Council 

intends generally to apply the Stage 1 

thresholds using GAAP when such 

information is available, or otherwise to 

rely on SAP, international financial 

reporting standards, or such other data 

as are available to the Council. While 

commenters suggested that the Council 

should rely on SAP when analyzing 

insurance companies, the Council has 

determined generally to rely on GAAP 

when such data are available in order to 

promote consistency and uniformity in 

the application of the Stage 1 

thresholds. The Council expects to 

review financial statements prepared in 

accordance with SAP in Stages 2 and 3, 

if applicable. 

4. Analysis and Procedures in Stages 2 

and 3 

After a subset of nonbank financial 

companies has been identified in Stage 

1, the Council intends in Stage 2 to 

conduct a robust analysis of the 

potential threat that each of those 

nonbank financial companies could 

pose to U.S. financial stability primarily 

based on information available to the 

Council through existing public and 

regulatory sources, including 

information possessed by the company’s 

primary financial regulatory agency or 

home country supervisor, as 

appropriate. The evaluation of the risk 

profile and characteristics of each 

nonbank financial company in Stage 2 

will be based on a wide range of 

quantitative and qualitative industryand company-specific factors. This 

analysis will use the six-category 

analytic framework described above 

under ‘‘Analytic Framework for 

Determinations.’’ To the extent data are 

available, the Council also intends in 

Stage 2 to consider the impact that 

resolving the nonbank financial 

company could have on U.S. financial 

stability. 

Following Stage 2, nonbank financial 

companies that are selected for 

additional review in Stage 3 will receive 

notice that they are being considered for 

a proposed determination. Several 

commenters suggested that this notice 

should include an explanation of the 

basis of the Council’s consideration, so 

that the nonbank financial company 

may present the Council with pertinent 

information. The Council believes that it 

would be premature to explain the basis 

of the nonbank financial company’s 

identification for further consideration 

because the decision to review a 

nonbank financial company in Stage 3 

does not represent a formal 

determination. The Council will provide 

the company with a written explanation 

of the basis of any proposed 

determination that it makes regarding 

the nonbank financial company after the 

Stage 3 review. 

As discussed in greater detail in the 

interpretive guidance, during the Stage 

3 review, the Council intends to analyze 

the nonbank financial company’s 

potential to pose a threat to financial 

stability based on information obtained 

directly from the nonbank financial 

company and the information 


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15However, the concurrence of the primary 

financial regulatory agency is not required prior to 

the Council’s proposed or final determination with 

respect to a nonbank financial company. The 

Council’s consultation with a nonbank financial 

company’s primary financial regulatory agency does 

not create any rights on the part of the nonbank 

financial company under consideration. 

previously obtained by the Council 

during prior stages of review. In Stage 

3, the Council likely will consider 

qualitative factors, including 

considerations that could mitigate or 

aggravate the potential of the nonbank 

financial company to pose a threat to 

U.S. financial stability, such as the 

nonbank financial company’s 

resolvability, the opacity of its 

operations, its complexity, and the 

extent and nature of its existing 

regulatory scrutiny. 

Several commenters requested an 

additional description of how the 

Council will perform its analysis in 

Stages 2 and 3, including a timetable for 

evaluations in Stages 2 and 3 and the 

relative weighting of particular metrics 

in the analysis. Commenters also 

suggested a variety of additional types 

of analysis the Council could perform in 

Stages 2 and 3, including trend analysis, 

risk-weighting of criteria, and analysis 

of economic cyclicality. Due to the 

diverse types of nonbank financial 

companies that may be evaluated in 

Stages 2 and 3 and the unique threats 

that these nonbank financial companies 

may pose to U.S. financial stability, the 

analysis and timing of review will 

depend on the particular circumstances 

of each nonbank financial company 

under consideration and the unique 

nature of the threat it may pose to U.S. 

financial stability. 

While the interpretive guidance 

describes many metrics and factors that 

the Council may consider in evaluating 

nonbank financial companies, one 

commenter suggested that the Council 

should publicly disclose the use of any 

factors that are not specified in the 

interpretive guidance. The Council will 

include in any written notice of a 

proposed or final determination the 

basis of the proposed or final 

determination, whether or not the 

relevant metrics and factors are 

specified in the interpretive guidance. 

In accordance with section 

112(a)(2)(N)(iv) of the Dodd-Frank Act, 

the basis for the Council’s final 

determinations will be specified in the 

Council’s annual report to Congress. 

Commenters also cited a nonbank 

financial company’s internal risk 

management program as a factor that the 

Council either should or should not 

consider in its evaluations. The 

interpretive guidance notes, as 

proposed, that the Council may analyze 

a nonbank financial company’s riskmanagement procedures as one of many 

factors in Stage 3. 

Several commenters also requested a 

clarification of the Council’s assessment 

of resolvability. The interpretive 

guidance has been revised to clarify that 

the evaluation of a nonbank financial 

company’s resolvability may mitigate or 

aggravate the potential of a nonbank 

financial company to pose a threat to 

U.S. financial stability. 

In response to a commenter’s request 

for a clarification of one of the sample 

metrics specified in the Proposed 

Guidance, the interpretive guidance 

clarifies that the Council may consider 

total consolidated assets or liabilities as 

determined under GAAP or the nonbank 

financial company’s applicable financial 

reporting standards, depending on the 

availability of data and the stage of the 

Determination Process. 

Several commenters also requested 

that nonbank financial companies that 

are evaluated in Stage 2 receive notices 

at the beginning of Stage 2, or be 

permitted to participate in Stage 2 by 

submitting information to the Council. 

Pursuant to the rule, the Council will 

provide every nonbank financial 

company that will be reviewed in Stage 

3 a notice of consideration and an 

opportunity to submit written materials 

to contest the Council’s consideration of 

the nonbank financial company for a 

proposed determination. Stage 2 is 

intended to comprise the Council’s 

initial company-specific analysis, based 

primarily on existing public and 

regulatory sources, and the Council 

believes that Stage 3 provides a 

sufficient opportunity for nonbank 

financial companies to participate in the 

Determination Process. In addition, 

commenters requested that a nonbank 

financial company be notified if it is 

evaluated in Stage 2 and will not be 

considered in Stage 3. Due to the 

preliminary nature of the Council’s 

evaluation of a nonbank financial 

company in Stage 2, the Council does 

not currently intend to provide for such 

notices in Stage 2. The Council may, at 

its discretion, adjust its process for 

providing notifications to nonbank 

financial companies as it gains 

experience with the Determination 

Process. 

Based on the analysis performed in 

Stages 2 and 3, the Council may 

consider whether to vote to subject a 

nonbank financial company to a 

proposed determination. Prior to 

making a proposed determination, the 

Council may (i) consult with the 

nonbank financial company’s primary 

financial regulatory agency or home 

country supervisor, as appropriate, and 

(ii) consider the views of such entities.15

Commenters urged the Council to 

consult closely with the primary state 

regulator for any U.S. nonbank financial 

company or the primary home country 

supervisor for any foreign nonbank 

financial company under consideration 

for a determination. Such consultation 

and coordination will be an important 

part of the Determination Process, and 

the Council believes this process is 

sufficiently incorporated into 

paragraphs (b), (c), and (d) of § 1310.20 

of the rule. 

As noted in the interpretive guidance, 

the Council expects to notify a nonbank 

financial company that has been 

evaluated in Stage 3 if the company, 

either before or after a proposed 

determination, ceases to be considered 

for determination. 

5. Process and Procedures Following a 

Proposed Determination 

Following a proposed determination, 

the Council will issue a written notice 

of the proposed determination to the 

nonbank financial company that will 

provide an explanation of the basis of 

the proposed determination. The 

nonbank financial company may request 

a hearing to contest the proposed 

determination in accordance with 

section 113(e) of the Dodd-Frank Act 

and § 1310.21(c) of the rule. 

In response to the public comments 

requesting more transparency regarding 

the Determination Process, the rule and 

interpretive guidance reflect certain 

clarifying changes. 

Several commenters made suggestions 

as to whether the Council should 

publish the names of nonbank financial 

companies under consideration for a 

determination. Due to the preliminary 

nature of the Council’s evaluation of a 

nonbank financial company prior to a 

final determination, and the potential 

for market participants to misinterpret 

such an announcement, the Council 

does not intend to publicly announce or 

otherwise disclose the name of any 

nonbank financial company that is 

under evaluation for a determination 

prior to a final determination with 

respect to such company. A statement 

that this is the Council’s intention has 

been included in the interpretive 

guidance. In addition, in response to 

comments, the interpretive guidance 

specifies that, when practicable and 

consistent with the purposes of the 

Determination Process, the Council 

intends to provide a nonbank financial 

company with a notice of a final 

determination at least one business day 

before publicly announcing the final 


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16Courts 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, Production Tool v. 

Employment & Training Administration, 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.’’ 

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

determination. This minimum time 

period is intended to allow nonbank 

financial companies to prepare any 

public communications and disclosures, 

but is relatively brief in order to avoid 

any potential market impact after the 

nonbank financial company is informed 

of the determination and before the 

determination is publicly announced. 

One commenter recommended that 

the Council specify, in every notice of 

proposed and final determination, the 

regulatory approach the Council 

recommends to the Board of Governors 

with respect to the nonbank financial 

company. Under the Dodd-Frank Act, 

while the Council is authorized to make 

determinations regarding nonbank 

financial companies, the establishment 

of prudential standards applicable to 

such companies is within the purview 

of the Board of Governors, subject to any 

recommendations by the Council under 

section 115 of the Dodd-Frank Act. 

Therefore, in accordance with its 

statutory authority, the Council does not 

generally intend to make companyspecific regulatory recommendations to 

the Board of Governors in connection 

with determinations. 

One commenter requested that the 

Council clarify the registration 

procedures for companies that are 

subject to a final determination. Under 

section 114 of the Dodd-Frank Act, the 

Board of Governors is authorized to 

prescribe the forms for registration, 

including such information as the Board 

of Governors, in consultation with the 

Council, may deem necessary or 

appropriate. It is therefore appropriate 

for the registration procedures to be 

established by the Board of Governors, 

rather than by the Council. 

D. Status of the Interpretive Guidance 

and Other Legal Issues 

Several commenters questioned the 

Council’s authority to issue the 

proposed rule and interpretive 

guidance, while other commenters 

requested that the Council clarify the 

legal status of the interpretive guidance. 

Section 111(e)(2) of the Dodd-Frank Act 

explicitly authorizes the Council to 

issue rules necessary for the conduct of 

the business of the Council, and 

specifies that such rules will constitute 

rules of agency organization, procedure, 

or practice. In accordance with this 

authority, the rule sets forth the 

procedures and practices that the 

Council will follow in the 

Determination Process and the manner 

in which nonbank financial companies 

may present themselves and their views 

to the Council. 

Moreover, as the agency charged by 

Congress with responsibility for acting 

under section 113 of the Dodd-Frank 

Act, the Council has the inherent 

authority to promulgate interpretive 

rules and interpretive guidance that 

explain and interpret the statutory 

factors that the Council will consider in 

the Determination Process.16 The 

interpretive guidance simply describes 

the Council’s interpretation of the 

statutory factors and provides 

transparency to the public as to how the 

Council intends to exercise its statutory 

grant of discretionary authority. The 

interpretive guidance does not impose 

duties on, or alter the rights or interests 

of, any company, nor does it relieve the 

Council of making specific 

determinations in accordance with the 

Dodd-Frank Act. Rather, the Council 

must review and determine whether to 

subject any particular nonbank financial 

company to Board of Governors 

supervision on a company-specific basis 

after review of all of the relevant factors. 

Moreover, by providing for transparency 

in the Determination Process, the rule 

and interpretive guidance promote an 

accountability that benefits the public 

and the nonbank financial companies 

subject to evaluation. Thus, 

notwithstanding arguments to the 

contrary by a small number of 

commenters, the Council has the 

necessary authority to issue the rule and 

interpretive guidance. 

Some commenters requested either 

that the interpretive guidance be 

incorporated into the rule text, or that 

the Council commit to providing the 

public with notice and an opportunity 

to comment on any proposed changes to 

the interpretive guidance. These 

commenters sought to ensure that the 

Council’s actions would be made 

consistently and fairly and that the 

public would have notice of any 

changes to the interpretive guidance. If 

the Council revises the interpretive 

guidance in the future, the Council may 

provide the public with notice and an 

opportunity to comment on those 

changes, as the Council determines 

appropriate. 

One commenter argued that Title I of 

the Dodd-Frank Act violates the U.S. 

Constitution based on (i) the limited 

judicial review of Council 

determinations under section 113(h) of 

the Dodd-Frank Act and (ii) the scope of 

the delegation of Congressional 

authority embodied by the regulation of 

nonbank financial companies under 

Title I of the statute. The Council 

disagrees with this assessment and does 

not believe that this rulemaking is the 

appropriate context to address these 

issues. 

One commenter asserted that the 

Council had not satisfied the 

requirements of the Congressional 

Review Act (5 U.S.C. 801) in connection 

with this rulemaking. That statute 

provides that before a rule can take 

effect, the federal agency promulgating 

it must submit certain information to 

Congress and to the Comptroller 

General. No action was required to be 

taken by the Council in connection with 

the issuance of the NPR and Proposed 

Guidance, and the Council will comply 

fully with the statutory requirements in 

connection with the issuance of the rule 

and interpretive guidance. 

IV. Section-by-Section Analysis 

A. Subpart A—General 

1. § 1310.1 Authority and Purpose 

This section sets forth the authority 

for and purpose of the rule. 

2. § 1310.2 Definitions 

This section defines the terms 

relevant to the rule. One commenter 

requested a clarification of the 

definition of ‘‘member agencies.’’ That 

term is defined, unchanged from the 

NPR, as an agency represented by a 

voting member of the Council under 

section 111(b)(1) of the Dodd-Frank Act. 

B. Subpart B—Determinations 

1. § 1310.10 Council Determinations 

Regarding Nonbank Financial 

Companies 

This section sets forth the Council’s 

authority to make proposed and final 

determinations with respect to nonbank 

financial companies, pursuant to 

sections 113(a) and (b) of the DoddFrank Act. It sets forth the two 

standards for determinations, the 

requirements for a Council vote with 

respect to proposed and final 

determinations, and the Council’s 

ability pursuant to section 112(d)(4) of 

the Dodd-Frank Act to request that the 

Board of Governors conduct an 

examination to determine whether a 

U.S. nonbank financial company should 

be supervised by the Board of Governors 

for purposes of Title I of the Dodd-Frank 

Act. 

Two commenters suggested that the 

Council clarify the circumstances under 


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17One of the statutory Council’s duties, under 

section 112(a)(2)(A), is to ‘‘collect information from 

member agencies, other Federal and State financial 

which the Council will enlist the Board 

of Governors as an examiner under 

§ 1310.10(c)(1) of the rule. In order to 

maintain consistency with section 

112(d)(4) of the Dodd-Frank Act, the 

Council is adopting this section of the 

rule as proposed. 

2. § 1310.11 Considerations in Making 

Proposed and Final Determinations 

This section sets forth the 

considerations that the Council must 

consider in making a proposed or final 

determination with respect to a U.S. 

nonbank financial company or foreign 

nonbank financial company. These 

considerations reflect the statutory 

factors set forth in sections 113(a)(2) and 

(b)(2) of the Dodd-Frank Act. 

3. § 1310.12 Anti-Evasion Provision 

This section sets forth the Council’s 

authority to require that the financial 

activities of a company that is not a 

nonbank financial company be 

supervised by the Board of Governors 

and be subject to prudential standards if 

the Council determines that material 

financial distress related to, or the 

nature, scope, size, scale, concentration, 

interconnectedness, or mix of, the 

financial activities conducted directly or 

indirectly by a company would pose a 

threat to the financial stability of the 

United States, and the company is 

organized or operates in such a manner 

as to evade the application of Title I of 

the Dodd-Frank Act. This section 

defines ‘‘financial activities’’ as that 

term is defined in section 113(c)(5) of 

the Dodd-Frank Act. 

Paragraph (d) is intended to clarify 

the application of subpart C. This 

section provides that, in accordance 

with section 113(c)(4) of the Dodd-Frank 

Act, the provisions of subpart C 

governing information collection 

(including the confidentiality 

provisions), consultation, notice and 

opportunity for an evidentiary hearing, 

emergency waivers or modifications, 

and reevaluation and rescission of 

determinations will apply in the context 

of the Council’s anti-evasion authority. 

The information-collection authority of 

the Council with respect to companies 

in this context derives from the 

authority of the Council to receive 

information from the OFR, member 

agencies, and the Federal Insurance 

Office, and from the authority of the 

OFR, on behalf of the Council, to require 

the submission of periodic and other 

reports from any financial company, 

under sections 112(a)(2)(A), 112(d)(1), 

(2), and (3), and 154(b) of the DoddFrank Act. 

Companies that are engaged in 

financial activities, but that are 

organized or operated in such a manner 

as to evade the application of Title I of 

the Dodd-Frank Act, may be subject to 

a determination by the Council under 

the anti-evasion authority in section 

113(c) of the Dodd-Frank Act. In 

exercising its anti-evasion authority 

with respect to a U.S. nonbank financial 

company or foreign nonbank financial 

company, the Council must consider the 

relevant statutory factors applicable to a 

U.S. or foreign nonbank financial 

company, respectively. The Council 

may make such a determination either 

on its own initiative or at the request of 

the Board of Governors. Commenters 

requested that the rule further define the 

scope of the Council’s anti-evasion 

authority. In addition, one commenter 

recommended that the rules should 

permit the supervision of internal 

financial activities of a nonbank 

financial company that has been the 

subject of a Council determination 

under its anti-evasion authority. 

Because § 1310.12 of the rule reflects the 

statutory authorities under section 

113(c), and the Council believes such 

consistency is appropriate, the Council 

has not revised this section as suggested 

by commenters. 

C. Subpart C—Information Collection; 

Proposed and Final Determinations; 

Evidentiary Hearings 

1. § 1310.20 Council Information 

Collection; Consultation; Coordination; 

Confidentiality 

This section sets forth the Council’s 

authority to collect information with 

respect to nonbank financial companies 

and its responsibilities in consulting 

and coordinating with regulators and 

maintaining the confidentiality of 

submitted information. Paragraph (a) 

sets forth the Council’s ability to collect 

information from the OFR, member 

agencies, the Federal Insurance Office, 

and other Federal and State financial 

regulatory agencies. Pursuant to its 

statutory authority, the Council may 

also receive and request the submission 

of data or information from its voting 

and non-voting members. Paragraph (b) 

sets forth the Council’s ability to collect 

information from nonbank financial 

companies. These two paragraphs 

implement the provisions of section 112 

of the Dodd-Frank Act relating to the 

Council’s authority to obtain 

information and collect financial data. 

Paragraph (c), which has been revised 

for consistency with section 113(g) of 

the Dodd-Frank Act, provides that the 

Council will consult with a nonbank 

financial company’s primary financial 

regulatory agency in a timely manner. 

Paragraph (d) provides that the Council 

will consult with appropriate foreign 

regulatory authorities, to the extent 

appropriate, in accordance with section 

113(i) of the Dodd-Frank Act. Paragraph 

(e) implements the confidentiality 

requirements provided in section 

112(d)(5) of the Dodd-Frank Act. 

Several commenters requested that 

information submitted by nonbank 

financial companies be treated as 

exempt from disclosure under the FOIA. 

Commenters also requested that further 

confidentiality provisions be added to 

the rule, such as incorporating the 

Council’s separate FOIA rule into the 

rule, committing to limiting the 

collection of sensitive information, and 

protections for information that has 

been collected. The Council is sensitive 

to these concerns. Under § 1310.20(e)(3) 

of the rule, the FOIA and the applicable 

exemptions thereunder apply to any 

data or information submitted under the 

rule. In addition, the Council’s FOIA 

rule will apply to data and information 

received by the Council. The Council 

expects that nonbank financial 

companies’ submissions will likely 

contain or consist of ‘‘trade secrets and 

commercial or financial information 

obtained from a person and privileged 

or confidential’’ and information that is 

‘‘contained in or related to examination, 

operating, or condition reports prepared 

by, on behalf of, or for the use of an 

agency responsible for the regulation or 

supervision of financial institutions.’’ 

These types of information are subject to 

withholding under exemptions 4 and 8 

of the FOIA (5 U.S.C. 552(b)(4) and (8)). 

To the extent that nonbank financial 

companies’ submissions contain or 

consist of data or information not 

subject to an applicable FOIA 

exemption, that data or information 

would be releasable under the FOIA. 

In response to commenters’ concerns 

regarding confidentiality, the Council 

has modified § 1310.20 of the rule to 

clarify that the protections under that 

section apply to data, information, and 

reports (i) collected from federal and 

state financial regulatory agencies other 

than the OFR, member agencies, and the 

Federal Insurance Office and (ii) 

voluntarily submitted by any nonbank 

financial company that is being 

considered for a determination. This 

change also addresses another 

commenter’s assertion that the Council 

lacks statutory authority to collect 

information from federal or state 

financial regulatory agencies other than 

the OFR, member agencies and the 

Federal Insurance Office,17 because the 


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regulatory agencies [and] the Federal Insurance 

Office.’’ 

Council expects that the OFR will 

participate as necessary in the 

information-collection and review 

process pursuant to its authority under 

sections 112(d) and 154(b) of the DoddFrank Act. Further, it should be noted 

that all members of the Council, 

including both its voting and non-voting 

members, will treat records of the 

Council in accordance with the 

Council’s FOIA rule. When the Council 

and its members provide non-public 

information to each other in connection 

with Council functions and activities, 

the recipients generally intend to treat 

such information as confidential and 

not publicly to disclose such 

information without the consent of the 

providing party. However, such 

information may be used by the 

recipients for enforcement, examination, 

resolution planning, or other purposes, 

subject to any appropriate limitations on 

the disclosure of such information to 

third parties, taking into account factors 

including the need to preserve the 

integrity of the supervision and 

examination process. The Council 

believes that the additional 

confidentiality restrictions suggested by 

commenters generally would not 

materially increase the confidentially of 

information collected by the Council, 

due to requirements under the FOIA, or 

would harmfully constrain the Council’s 

ability to perform its evaluations of 

nonbank financial companies. 

Commenters also recommended that 

the Council rely to the extent possible 

on existing regulatory sources and on 

information in the form it is reported to 

regulators, to minimize the burden of 

information requests. The Council 

generally agrees with these comments, 

and in accordance with the Council’s 

statutory obligation under section 

112(d)(3)(B) of the Dodd-Frank Act 

intends, whenever possible, to rely on 

information available from the OFR or 

any 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 the collection of 

information under this section of the 

rule will be performed in a manner that 

attempts to minimize burdens for 

affected nonbank financial companies. 

2. § 1310.21 Proposed and Final 

Determinations; Notice and Opportunity 

for an Evidentiary Hearing 

This section sets forth the procedural 

rights of a nonbank financial company 

being considered for a proposed or final 

determination, the time period within 

which the Council will act after it 

notifies the nonbank financial company 

that it is being considered for a 

proposed determination, and the 

nonbank financial company’s rights to a 

hearing after a proposed determination. 

Paragraph (a) provides that the Council 

will deliver written notice to a nonbank 

financial company that it is being 

considered for a proposed 

determination and will provide the 

nonbank financial company an 

opportunity to submit written materials 

to contest the proposed determination. 

Paragraph (a) clarifies that the nonbank 

financial company may submit any 

written materials to contest the 

proposed determination, including 

materials concerning whether the 

nonbank financial company meets the 

standards for a determination. In 

response to comments, paragraph (a) 

provides that the Council will provide 

a nonbank financial company at least 30 

days to respond to the notice of 

consideration. Commenters had 

requested a longer minimum period for 

responses, but based on the types and 

volume of information the Council 

expects to request, the subsequent 

opportunity for a nonbank to provide 

additional information following any 

proposed determination, and the 

Council’s authority in individual cases 

to grant a longer period for a response, 

the Council believes a 30-day minimum 

is appropriate. 

Paragraph (b) provides that the 

Council will provide a nonbank 

financial company with written notice 

of a proposed determination, including 

an explanation of the basis of the 

proposed determination. Paragraphs (c), 

(d), and (e) set forth the procedures for 

an evidentiary hearing following a 

proposed determination, pursuant to 

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

and provide the time period within 

which the Council will make a final 

determination. These paragraphs also 

provide that the Council will make 

public any final determination that it 

makes. While not specified in the rule, 

the Council expects to notify the 

relevant nonbank financial company if 

the Council has not made a final 

determination with respect to the 

company within the time period set 

forth in paragraph (d) or (e), as 

applicable. In response to comments, 

the Council has clarified paragraph (c) 

to provide that the hearing would be 

nonpublic. However, the Council has 

not revised the rule as requested by 

several commenters to provide a 

nonbank financial company with a right 

to an oral hearing. Instead, the rule 

maintains consistency with section 

113(e)(2) of the Dodd-Frank Act, which 

grants the Council sole discretion as to 

the format of any hearing. Paragraph 

(c)(1) has also been revised to clarify 

that, consistent with the definition of 

‘‘hearing date,’’ a hearing may be before 

the Council or its representatives. 

Paragraph (f) sets forth the time 

period within which the Council may 

make a proposed determination with 

respect to a nonbank financial company 

that has received a notice of 

consideration of determination. Under 

paragraph (a)(3), the Council will notify 

a nonbank financial company that is 

being considered for a proposed 

determination of the date on which the 

Council deems its evidentiary record 

regarding that nonbank financial 

company to be complete. If the Council 

does not make a proposed 

determination with respect to that 

nonbank financial company within 180 

days after that date, the Council will not 

make a proposed determination unless 

the Council issues a subsequent written 

notice of consideration of determination 

under paragraph (a) and thereafter 

complies with the other procedures set 

forth in that section. This paragraph is 

intended to provide clarity to a nonbank 

financial company that is subject to a 

notice of consideration of determination 

regarding the timing of any potential 

subsequent Council action. The Council 

expects to notify the relevant nonbank 

financial company upon expiration of 

this 180-day period. 

3. § 1310.22 Emergency Exception to 

§ 1310.21 

This section sets forth the process by 

which the Council may waive or modify 

any of the notice or other procedural 

requirements of the rule if the Council 

determines that the waiver or 

modification is necessary or appropriate 

to prevent or mitigate threats posed by 

the nonbank financial company to the 

financial stability of the United States, 

pursuant to section 113(f) of the DoddFrank Act. This section provides that a 

nonbank financial company will receive 

notice of the waiver or modification and 

an opportunity for a hearing to contest 

the waiver or modification, and sets 

forth the process by which the Council 

will make and publicly announce its 

final determination. This section 

incorporates the statutory requirement 

that the Council consult with the 

appropriate home country supervisor, if 

any, of a foreign nonbank financial 

company considered for a determination 

under this section. This section also 

requires the Council to consult with the 

primary financial regulatory agency, if 

any, of a nonbank financial company in 


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18Available at http://www.gpo.gov/fdsys/pkg/ 

WCPD-1993-10-04/pdf/WCPD-1993-10-04- 

Pg1925.pdf. 

making a determination under this 

section. These consultations will be 

conducted in such time and manner as 

the Council may deem appropriate. 

Several commenters requested that the 

Council clarify or limit the scope of this 

section of the rule. To maintain 

consistency with the Council’s statutory 

authority under section 113(f) of the 

Dodd-Frank Act, and to avoid imposing 

unwarranted restrictions on the 

Council’s ability to respond to 

emergency situations, the Council is 

adopting this section as proposed. In 

response to comments, the Council has 

clarified paragraph (c) to provide that 

the hearing under this section would be 

nonpublic, and the Council has revised 

paragraph (d) to clarify that while the 

Council will publicly announce final 

determinations under § 1310.10(a), the 

Council will not publicly announce 

determinations regarding waivers or 

modifications under § 1310.22(c). 

Paragraph (c)(1) has also been revised to 

clarify that, consistent with the 

definition of ‘‘hearing date,’’ a hearing 

may be before the Council or its 

representatives. 

4. § 1310.23 Council Reevaluation and 

Rescission of Determinations 

This section sets forth the Council’s 

statutory responsibility, pursuant to 

section 113(d) of the Dodd-Frank Act, to 

reevaluate currently effective 

determinations and rescind any 

determination if the Council determines 

that the nonbank financial company no 

longer meets the standards for 

determination. 

In response to comments requesting 

clarification of the process for 

reevaluations, paragraph (b) provides 

new procedural protections for nonbank 

financial companies. Pursuant to 

paragraph (b), the Council will notify 

each nonbank financial company 

subject to a currently effective 

determination prior to the Council’s 

annual reevaluation. The nonbank 

financial company will be provided an 

opportunity to submit written materials 

to the Council to contest the 

determination. Because increased 

information about any nonbank 

financial company subject to a previous 

determination will be available to the 

Council through the Board of Governors, 

and the Council will have previously 

performed a comprehensive analysis of 

any such company, a replication in full 

of the Council’s evaluation in Stages 2 

and 3 will not be necessary. Instead, the 

Council expects that its reevaluations 

will focus on any material changes with 

respect to the nonbank financial 

company or the markets in which it 

operates since the Council’s previous 

review. Commenters also suggested that 

nonbank financial companies be 

permitted to request additional 

reevaluations. Due to the relatively 

frequent mandatory reevaluations, such 

additional reevaluations should rarely 

be necessary. In the event of an 

extraordinary change that materially 

decreases the threat a nonbank financial 

company poses to U.S. financial 

stability relatively soon after a previous 

reevaluation, the Council may, at its 

sole discretion, consider a request from 

such company for a reevaluation prior 

to the next annual reevaluation. New 

paragraph (d) provides that upon a 

rescission of a determination with 

respect to a nonbank financial company, 

the Council will notify the company and 

publicly announce the rescission. 

V. Regulatory Flexibility Act 

The Council certifies that this final 

rule will not have a significant 

economic impact on a substantial 

number of small entities. The economic 

impact of this rule is not expected to be 

significant. The final rule would apply 

only to nonbank financial companies 

that could pose a threat to the financial 

stability of the United States. Size is an 

important factor, although not the 

exclusive factor, in assessing whether a 

nonbank financial company could pose 

a threat to financial stability. The 

Council expects that few, if any, small 

companies (as defined for purposes of 

the Small Business Act) could pose a 

threat to financial stability. Therefore, 

the Council does not expect the rule to 

directly affect a substantial number of 

small entities. Accordingly, a regulatory 

flexibility analysis under the Regulatory 

Flexibility Act (5 U.S.C. 601–612) is not 

required. 

VI. Paperwork Reduction Act 

The collection of information 

contained in this final rule has been 

reviewed and approved by the Office of 

Management and Budget in accordance 

with the Paperwork Reduction Act of 

1995 (44 U.S.C. 3507(d)) under control 

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 in this 

final rule is found in § 1310.20, 

§ 1310.21, § 1310.22, and § 1310.23. 

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 this final rule is 1,000 

hours. We estimate the cost associated 

with this information collection to be 

$450,000. 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 

nonbank financial companies internally 

at an average cost of $400 per hour, and 

the remainder will be carried by outside 

professionals retained by nonbank 

financial companies at an average cost 

of $600 per hour. In addition, in 

determining these estimates, the 

Council considered its obligation under 

§ 1310.20(b) of the rule to, whenever 

possible, rely on information available 

from the OFR or any 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 rule 

will be performed in a manner that 

attempts to minimize burdens for 

affected nonbank financial companies. 

The aggregate burden will be subject to 

the number of nonbank financial 

companies that are evaluated in Stage 3, 

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 nonbank 

financial companies provide to the 

Council during the Determination 

Process. 

Several commenters asserted that the 

Paperwork Reduction Act disclosure in 

the NPR did not comply with the 

statute, citing a requirement to provide 

the public with notice and an 

opportunity to comment on the 

proposed collection of information, 

including an estimate of the burden that 

will result from the collection of 

information. The NPR cited the sections 

of the proposed rule that related to the 

collection of information, described the 

types of information expected to be 

collected and the frequency of 

collections, provided an estimate of the 

total annual reporting burden, and 

enabled the public to assess the likely 

respondents. The NPR therefore 

complied with the requirements of the 

Paperwork Reduction Act. 

VII. Executive Orders 12866 and 13563 

Presidential Executive Order 12866, 

‘‘Regulatory Planning and Review,’’ 18

and Executive Order 13563, ‘‘Improving 


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19Available at http://www.gpo.gov/fdsys/pkg/FR2011-01-21/pdf/2011-1385.pdf. 

Regulation and Regulatory Review,’’ 19

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). Executive Order 13563 

emphasizes the importance of 

quantifying both costs and benefits, of 

reducing costs, of harmonizing rules, 

and of promoting flexibility. This rule 

has been designated a ‘‘significant 

regulatory action’’ although not 

economically significant under section 

3(f) of Executive Order 12866. 

Accordingly, the rule has been reviewed 

by the Office of Management and 

Budget. 

Several commenters suggested that 

the Council should, or is required to, 

conduct a cost-benefit analysis, such as 

a review of the impact of the rule on the 

economy and on different sectors of the 

financial services industry. These 

commenters argued that a cost-benefit 

analysis would enhance transparency 

and ensure that costs are minimized, 

and may be required under Executive 

Orders 12866 and 13563. In addition, 

commenters questioned the 

determination that this rule is not 

economically significant under section 

3(f) of Executive Order 12866. That 

section defines ‘‘significant regulatory 

action’’ to include a regulatory action 

(which may include a proposed rule of 

agency procedure or practice) that is 

likely to result in a rule that may raise 

certain novel legal or policy issues. 

Based on this determination, which is 

made by the Office of Management and 

Budget, the Council is not required to 

conduct a cost-benefit analysis in 

connection with this rulemaking. The 

rule and the interpretive guidance are 

limited to descriptions of the processes 

and procedures that the Council intends 

to follow in making determinations 

under section 113 of the Dodd-Frank 

Act, the manner in which nonbank 

financial companies may present 

themselves and their views to the 

Council, the Council’s interpretation of 

the statutory factors, and how the 

Council intends to exercise its statutory 

grant of discretionary authority. The 

rights and obligations of nonbank 

financial companies that the Council is 

considering for a determination, or for a 

reevaluation and potential rescission of 

a determination, arise directly from 

section 113 of the Dodd-Frank Act. The 

rights and obligations of nonbank 

financial companies that the Council 

has been determined shall be supervised 

by the Board of Governors arise from 

other sections of the Dodd-Frank Act 

and the rules promulgated thereunder, 

such as the enhanced prudential 

standards to be established by the Board 

of Governors and the resolution plans 

required under section 165 of the DoddFrank Act. Based on data currently 

available to the Council through existing 

public and regulatory sources, the 

Council has estimated that fewer than 

50 nonbank financial companies meet 

the Stage 1 thresholds. 

List of Subjects in 21 CFR Part 1310 

Nonbank financial companies. 

Financial Stability Oversight Council 

Authority and Issuance 

For the reasons set forth in the 

preamble, the Financial Stability 

Oversight Council adds a new part 1310 

to Title 12 of the Code of Federal 

Regulations, to read as follows: 

PART 1310—AUTHORITY TO REQUIRE 

SUPERVISION AND REGULATION OF 

CERTAIN NONBANK FINANCIAL 

COMPANIES 

Sec. 

Subpart A—General 

1310.1 Authority and purpose. 

1310.2 Definitions. 

Subpart B—Determinations 

1310.10 Council determinations regarding 

nonbank financial companies. 

1310.11 Considerations in making proposed 

and final determinations. 

1310.12 Anti-evasion provision. 

Subpart C—Information Collection; 

Proposed and Final Determinations; 

Evidentiary Hearings 

1310.20 Council information collection; 

consultation; coordination; 

confidentiality. 

1310.21 Proposed and final determinations; 

notice and opportunity for an 

evidentiary hearing. 

1310.22 Emergency exception to § 1310.21. 

1310.23 Council reevaluation and 

rescission of determinations. 

Appendix A to Part 1310—Financial Stability 

Oversight Council Guidance for Nonbank 

Financial Company Determinations 

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

12 U.S.C. 5323. 

Subpart A—General 

§ 1310.1 Authority and purpose. 

(a) Authority. This part is issued by 

the Council under sections 111, 112 and 

113 of the Dodd-Frank Wall Street 

Reform and Consumer Protection Act 

(‘‘Dodd-Frank Act’’) (12 U.S.C. 5321, 

5322, and 5323). 

(b) Purpose. The principal purposes of 

this part are to set forth the standards 

and procedures governing Council 

determinations under section 113 of the 

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

including whether material financial 

distress at a nonbank financial 

company, or the nature, scope, size, 

scale, concentration, 

interconnectedness, or mix of the 

activities of the nonbank financial 

company, could pose a threat to the 

financial stability of the United States, 

and whether a nonbank financial 

company shall be supervised by the 

Board of Governors and shall be subject 

to prudential standards in accordance 

with Title I of the Dodd-Frank Act. 

§ 1310.2 Definitions. 

The terms used in this part have the 

following meanings— 

Board of Governors. The term ‘‘Board 

of Governors’’ means the Board of 

Governors of the Federal Reserve 

System. 

Commission. The term ‘‘Commission’’ 

means the Securities and Exchange 

Commission, except in the context of 

the Commodity Futures Trading 

Commission. 

Council. The term ‘‘Council’’ means 

the Financial Stability Oversight 

Council. 

Federal Insurance Office. The term 

‘‘Federal Insurance Office’’ means the 

office established within the 

Department of the Treasury by section 

502(a) of the Dodd-Frank Act (31 U.S.C. 

301 (note)). 

Foreign nonbank financial company. 

The term ‘‘foreign nonbank financial 

company’’ means a company (other than 

a company that is, or is treated in the 

United States as, a bank holding 

company) that is— 

(1) Incorporated or organized in a 

country other than the United States; 

and 

(2) ‘‘Predominantly engaged in 

financial activities,’’ as that term is 

defined in section 102(a)(6) of the DoddFrank Act (12 U.S.C. 5311(a)(6)) and 

pursuant to any requirements for 

determining if a company is 

predominantly engaged in financial 

activities as established by regulation of 

the Board of Governors pursuant to 

section 102(b) of the Dodd-Frank Act 

(12 U.S.C. 5311(b)), including through a 

branch in the United States. 

Hearing date. The term ‘‘hearing 

date’’ means the latest of— 

(1) The date on which the Council has 

received all of the written materials 

timely submitted by a nonbank financial 

company for a hearing that is conducted 

without oral testimony pursuant to 

§ 1310.21 or § 1310.22, as applicable; 


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(2) The final date on which the 

Council or its representatives convene 

to hear oral testimony presented by a 

nonbank financial company pursuant to 

§ 1310.21 or § 1310.22, as applicable; 

and 

(3) The date on which the Council has 

received all of the written materials 

timely submitted by a nonbank financial 

company to supplement any oral 

testimony and materials presented by 

the nonbank financial company 

pursuant to § 1310.21 or § 1310.22, as 

applicable. 

Member agency. The term ‘‘member 

agency’’ means an agency represented 

by a voting member of the Council 

under section 111(b)(1) of the DoddFrank Act (12 U.S.C. 5321). 

Nonbank financial company. The 

term ‘‘nonbank financial company’’ 

means a U.S. nonbank financial 

company or a foreign nonbank financial 

company. 

Office of Financial Research. The 

term ‘‘Office of Financial Research’’ 

means the office established within the 

Department of the Treasury by section 

152 of the Dodd-Frank Act (12 U.S.C. 

5342). 

Primary financial regulatory agency. 

The term ‘‘primary financial regulatory 

agency’’ means— 

(1) The appropriate Federal banking 

agency, with respect to institutions 

described in section 3(q) of the Federal 

Deposit Insurance Act (12 U.S.C. 

1813(q)), except to the extent that an 

institution is or the activities of an 

institution are otherwise described in 

paragraph (2), (3), (4), or (5) of this 

definition; 

(2) The Commission, with respect to— 

(i) Any broker or dealer that is 

registered with the Commission under 

the Securities Exchange Act of 1934, 

with respect to the activities of the 

broker or dealer that require the broker 

or dealer to be registered under that Act; 

(ii) Any investment company that is 

registered with the Commission under 

the Investment Company Act of 1940, 

with respect to the activities of the 

investment company that require the 

investment company to be registered 

under that Act; 

(iii) Any investment adviser that is 

registered with the Commission under 

the Investment Advisers Act of 1940, 

with respect to the investment advisory 

activities of such company and 

activities that are incidental to such 

advisory activities; 

(iv) Any clearing agency registered 

with the Commission under the 

Securities Exchange Act of 1934, with 

respect to the activities of the clearing 

agency that require the agency to be 

registered under such Act; 

(v) Any nationally recognized 

statistical rating organization registered 

with the Commission under the 

Securities Exchange Act of 1934; 

(vi) Any transfer agent registered with 

the Commission under the Securities 

Exchange Act of 1934; 

(vii) Any exchange registered as a 

national securities exchange with the 

Commission under the Securities 

Exchange Act of 1934; 

(viii) Any national securities 

association registered with the 

Commission under the Securities 

Exchange Act of 1934; 

(ix) Any securities information 

processor registered with the 

Commission under the Securities 

Exchange Act of 1934; 

(x) The Municipal Securities 

Rulemaking Board established under the 

Securities Exchange Act of 1934; 

(xi) The Public Company Accounting 

Oversight Board established under the 

Sarbanes-Oxley Act of 2002 (15 U.S.C. 

7201 et seq.); 

(xii) The Securities Investor 

Protection Corporation established 

under the Securities Investor Protection 

Act of 1970 (15 U.S.C. 78aaa et seq.); 

and 

(xiii) Any security-based swap 

execution facility, security-based swap 

data repository, security-based swap 

dealer or major security-based swap 

participant registered with the 

Commission under the Securities 

Exchange Act of 1934, with respect to 

the security-based swap activities of the 

person that require such person to be 

registered under such Act; 

(3) The Commodity Futures Trading 

Commission, with respect to— 

(i) Any futures commission merchant 

registered with the Commodity Futures 

Trading Commission under the 

Commodity Exchange Act (7 U.S.C. 1 et 

seq.), with respect to the activities of the 

futures commission merchant that 

require the futures commission 

merchant to be registered under that 

Act; 

(ii) Any commodity pool operator 

registered with the Commodity Futures 

Trading Commission under the 

Commodity Exchange Act (7 U.S.C. 1 et 

seq.), with respect to the activities of the 

commodity pool operator that require 

the commodity pool operator to be 

registered under that Act, or a 

commodity pool, as defined in that Act; 

(iii) Any commodity trading advisor 

or introducing broker registered with 

the Commodity Futures Trading 

Commission under the Commodity 

Exchange Act (7 U.S.C. 1 et seq.), with 

respect to the activities of the 

commodity trading advisor or 

introducing broker that require the 

commodity trading advisor or 

introducing broker to be registered 

under that Act; 

(iv) Any derivatives clearing 

organization registered with the 

Commodity Futures Trading 

Commission under the Commodity 

Exchange Act (7 U.S.C. 1 et seq.), with 

respect to the activities of the 

derivatives clearing organization that 

require the derivatives clearing 

organization to be registered under that 

Act; 

(v) Any board of trade designated as 

a contract market by the Commodity 

Futures Trading Commission under the 

Commodity Exchange Act (7 U.S.C. 1 et 

seq.); 

(vi) Any futures association registered 

with the Commodity Futures Trading 

Commission under the Commodity 

Exchange Act (7 U.S.C. 1 et seq.); 

(vii) Any retail foreign exchange 

dealer registered with the Commodity 

Futures Trading Commission under the 

Commodity Exchange Act (7 U.S.C. 1 et 

seq.), with respect to the activities of the 

retail foreign exchange dealer that 

require the retail foreign exchange 

dealer to be registered under that Act; 

(viii) Any swap execution facility, 

swap data repository, swap dealer, or 

major swap participant registered with 

the Commodity Futures Trading 

Commission under the Commodity 

Exchange Act (7 U.S.C. 1 et seq.) with 

respect to the swap activities of the 

person that require such person to be 

registered under that Act; and 

(ix) Any registered entity as defined 

in section 1a of the Commodity 

Exchange Act (7 U.S.C. 1a), with respect 

to the activities of the registered entity 

that require the registered entity to be 

registered under that Act; 

(4) The State insurance authority of 

the State in which an insurance 

company is domiciled, with respect to 

the insurance activities and activities 

that are incidental to such insurance 

activities of an insurance company that 

is subject to supervision by the State 

insurance authority under State 

insurance law; and 

(5) The Federal Housing Finance 

Agency, with respect to Federal Home 

Loan Banks or the Federal Home Loan 

Bank System, and with respect to the 

Federal National Mortgage Association 

or the Federal Home Loan Mortgage 

Corporation. 

Prudential standards. The term 

‘‘prudential standards’’ means enhanced 

supervision and regulatory standards 

established by the Board of Governors 

under section 165 of the Dodd-Frank 

Act (12 U.S.C. 5365). 

Significant companies. The terms 

‘‘significant nonbank financial 


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company’’ and ‘‘significant bank 

holding company’’ have the meanings 

ascribed to such terms by regulation of 

the Board of Governors issued under 

section 102(a)(7) of the Dodd-Frank Act 

(12 U.S.C. 5311(a)(7)). 

U.S. nonbank financial company. The 

term ‘‘U.S. nonbank financial company’’ 

means a company (other than a bank 

holding company; a Farm Credit System 

institution chartered and subject to the 

provisions of the Farm Credit Act of 

1971 (12 U.S.C. 2001 et seq.); a national 

securities exchange (or parent thereof), 

clearing agency (or parent thereof, 

unless the parent is a bank holding 

company), security-based swap 

execution facility, or security-based 

swap data repository registered with the 

Commission; a board of trade designated 

as a contract market by the Commodity 

Futures Trading Commission (or parent 

thereof); or a derivatives clearing 

organization (or parent thereof, unless 

the parent is a bank holding company), 

swap execution facility, or swap data 

repository registered with the 

Commodity Futures Trading 

Commission), that is— 

(1) Incorporated or organized under 

the laws of the United States or any 

State; and 

(2) ‘‘Predominantly engaged in 

financial activities,’’ as that term is 

defined in section 102(a)(6) of the DoddFrank Act (12 U.S.C. 5311(a)(6)), and 

pursuant to any requirements for 

determining if a company is 

predominantly engaged in financial 

activities as established by regulation of 

the Board of Governors pursuant to 

section 102(b) of the Dodd-Frank Act 

(12 U.S.C. 5311(b)). 

Subpart B—Determinations 

§ 1310.10 Council determinations 

regarding nonbank financial companies. 

(a) Determinations. The Council may 

determine that a nonbank financial 

company shall be supervised by the 

Board of Governors and shall be subject 

to prudential standards, in accordance 

with Title I of the Dodd-Frank Act, if the 

Council determines that material 

financial distress at the nonbank 

financial company, or the nature, scope, 

size, scale, concentration, 

interconnectedness, or mix of the 

activities of the nonbank financial 

company, could pose a threat to the 

financial stability of the United States. 

(b) Vote required. Any proposed or 

final determination under paragraph (a) 

of this section shall— 

(1) Be made by the Council and shall 

not be delegated by the Council; and 

(2) Require the vote of not fewer than 

two-thirds of the voting members of the 

Council then serving, including the 

affirmative vote of the Chairperson of 

the Council. 

(c) Back-up examination by the Board 

of Governors. (1) If the Council is unable 

to determine whether the financial 

activities of a U.S. nonbank financial 

company, including a U.S. nonbank 

financial company that is owned by a 

foreign nonbank financial company, 

pose a threat to the financial stability of 

the United States, based on information 

or reports obtained by the Council 

under § 1310.20, including discussions 

with management, and publicly 

available information, the Council may 

request the Board of Governors, and the 

Board of Governors is authorized, to 

conduct an examination of the U.S. 

nonbank financial company and its 

subsidiaries for the sole purpose of 

determining whether the nonbank 

financial company should be supervised 

by the Board of Governors for purposes 

of Title I of the Dodd-Frank Act (12 

U.S.C. 5311–5374). 

(2) The Council shall review the 

results of the examination of a nonbank 

financial company, including its 

subsidiaries, conducted by the Board of 

Governors under this paragraph (c) in 

connection with any proposed or final 

determination under paragraph (a) of 

this section with respect to the nonbank 

financial company. 

§ 1310.11 Considerations in making 

proposed and final determinations. 

(a) Considerations for U.S. nonbank 

financial companies. In making a 

proposed or final determination under 

§ 1310.10(a) with respect to a U.S. 

nonbank financial company, the 

Council shall consider— 

(1) The extent of the leverage of the 

U.S. nonbank financial company and its 

subsidiaries; 

(2) The extent and nature of the offbalance-sheet exposures of the U.S. 

nonbank financial company and its 

subsidiaries; 

(3) The extent and nature of the 

transactions and relationships of the 

U.S. nonbank financial company and its 

subsidiaries with other significant 

nonbank financial companies and 

significant bank holding companies; 

(4) The importance of the U.S. 

nonbank financial company and its 

subsidiaries 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; 

(5) The importance of the U.S. 

nonbank financial company and its 

subsidiaries as a source of credit for 

low-income, minority, or underserved 

communities, and the impact that the 

failure of such U.S. nonbank financial 

company would have on the availability 

of credit in such communities; 

(6) The extent to which assets are 

managed rather than owned by the U.S. 

nonbank financial company and its 

subsidiaries, and the extent to which 

ownership of assets under management 

is diffuse; 

(7) The nature, scope, size, scale, 

concentration, interconnectedness, and 

mix of the activities of the U.S. nonbank 

financial company and its subsidiaries; 

(8) The degree to which the U.S. 

nonbank financial company and its 

subsidiaries are already regulated by 1 

or more primary financial regulatory 

agencies; 

(9) The amount and nature of the 

financial assets of the U.S. nonbank 

financial company and its subsidiaries; 

(10) The amount and types of the 

liabilities of the U.S. nonbank financial 

company and its subsidiaries, including 

the degree of reliance on short-term 

funding; and 

(11) Any other risk-related factor that 

the Council deems appropriate, either 

by regulation or on a case-by-case basis. 

(b) Considerations for foreign 

nonbank financial companies. In 

making a proposed or final 

determination under § 1310.10(a) with 

respect to a foreign nonbank financial 

company, the Council shall consider— 

(1) The extent of the leverage of the 

foreign nonbank financial company and 

its subsidiaries; 

(2) The extent and nature of the 

United States related off-balance-sheet 

exposures of the foreign nonbank 

financial company and its subsidiaries; 

(3) The extent and nature of the 

transactions and relationships of the 

foreign nonbank financial company and 

its subsidiaries with other significant 

nonbank financial companies and 

significant bank holding companies; 

(4) The importance of the foreign 

nonbank financial company and its 

subsidiaries as a source of credit for 

United States households, businesses, 

and State and local governments and as 

a source of liquidity for the United 

States financial system; 

(5) The importance of the foreign 

nonbank financial company and its 

subsidiaries as a source of credit for 

low-income, minority, or underserved 

communities in the United States, and 

the impact that the failure of such 

foreign nonbank financial company 

would have on the availability of credit 

in such communities; 

(6) The extent to which assets are 

managed rather than owned by the 

foreign nonbank financial company and 

its subsidiaries and the extent to which 


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ownership of assets under management 

is diffuse; 

(7) The nature, scope, size, scale, 

concentration, interconnectedness, and 

mix of the activities of the foreign 

nonbank financial company and its 

subsidiaries; 

(8) The extent to which the foreign 

nonbank financial company and its 

subsidiaries are subject to prudential 

standards on a consolidated basis in the 

foreign nonbank financial company’s 

home country that are administered and 

enforced by a comparable foreign 

supervisory authority; 

(9) The amount and nature of the 

United States financial assets of the 

foreign nonbank financial company and 

its subsidiaries; 

(10) The amount and nature of the 

liabilities of the foreign nonbank 

financial company and its subsidiaries 

used to fund activities and operations in 

the United States, including the degree 

of reliance on short-term funding; and 

(11) Any other risk-related factor that 

the Council deems appropriate, either 

by regulation or on a case-by-case basis. 

§ 1310.12 Anti-evasion provision. 

(a) Determinations. In order to avoid 

evasion of Title I of the Dodd-Frank Act 

(12 U.S.C. 5311–5374) or this part, the 

Council, on its own initiative or at the 

request of the Board of Governors, may 

require that the financial activities of a 

company shall be supervised by the 

Board of Governors and subject to 

prudential standards if the Council 

determines that— 

(1) Material financial distress related 

to, or the nature, scope, size, scale, 

concentration, interconnectedness, or 

mix of, the financial activities 

conducted directly or indirectly by a 

company incorporated or organized 

under the laws of the United States or 

any State or the financial activities in 

the United States of a company 

incorporated or organized in a country 

other than the United States would pose 

a threat to the financial stability of the 

United States, based on consideration of 

the factors in— 

(i) § 1310.11(a) if the company is 

incorporated or organized under the 

laws of the United States or any State; 

or 

(ii) § 1310.11(b) if the company is 

incorporated or organized in a country 

other than the United States; and 

(2) The company is organized or 

operates in such a manner as to evade 

the application of Title I of the DoddFrank Act (12 U.S.C. 5311–5374) or this 

part. 

(b) Vote required. Any proposed or 

final determination under paragraph (a) 

of this section shall— 

(1) Be made by the Council and shall 

not be delegated by the Council; and 

(2) Require the vote of not fewer than 

two-thirds of the voting members of the 

Council then serving, including the 

affirmative vote of the Chairperson of 

the Council. 

(c) Definition of covered financial 

activities. For purposes of this section, 

the term ‘‘financial activities’’— 

(1) Means activities that are financial 

in nature (as defined in section 4(k) of 

the Bank Holding Company Act of 

1956); 

(2) Includes the ownership or control 

of one or more insured depository 

institutions; and 

(3) Does not include internal financial 

activities conducted for the company or 

any affiliate thereof, including internal 

treasury, investment, and employee 

benefit functions. 

(d) Application of other provisions. 

Sections 1310.20(a), 1310.20(b), 

1310.20(c), 1310.20(e), 1310.21, 

1310.22, and 1310.23, and the 

definitions referred to therein, shall 

apply to proposed and final 

determinations of the Council with 

respect to the financial activities of a 

company pursuant to this section in the 

same manner as such sections apply to 

proposed and final determinations of 

the Council with respect to nonbank 

financial companies. 

Subpart C—Information Collection; 

Proposed and Final Determinations; 

Evidentiary Hearings 

§ 1310.20 Council information collection; 

consultation; coordination; confidentiality. 

(a) Information collection from the 

Office of Financial Research, member 

agencies, the Federal Insurance Office, 

and other Federal and State financial 

regulatory agencies. The Council may 

receive, and may request the submission 

of, such data or information from the 

Office of Financial Research, member 

agencies, the Federal Insurance Office, 

and (acting through the Office of 

Financial Research, to the extent the 

Council determines necessary) other 

Federal and State financial regulatory 

agencies as the Council deems necessary 

to carry out the provisions of Title I of 

the Dodd-Frank Act (12 U.S.C. 5311– 

5374) or this part. 

(b) Information collection from 

nonbank financial companies. (1) The 

Council may, to the extent the Council 

determines appropriate, direct the 

Office of Financial Research to require 

the submission of periodic and other 

reports from any nonbank financial 

company, including a nonbank financial 

company that is being considered for a 

proposed or final determination under 

§ 1310.10(a), for the purpose of 

assessing the extent to which a nonbank 

financial company poses a threat to the 

financial stability of the United States. 

(2) Before requiring the submission of 

reports under this paragraph (b) from 

any nonbank financial company that is 

regulated by a member agency or any 

primary financial regulatory agency, the 

Council, acting through the Office of 

Financial Research, shall coordinate 

with such agency or agencies and shall, 

whenever possible, rely on information 

available from the Office of Financial 

Research or such agency or agencies. 

(3) Before requiring the submission of 

reports under this paragraph (b) from a 

company that is a foreign nonbank 

financial company, the Council shall, 

acting through the Office of Financial 

Research, to the extent appropriate, 

consult with the appropriate foreign 

regulator of such foreign nonbank 

financial company and, whenever 

possible, rely on information already 

being collected by such foreign 

regulator, with English translation. 

(4) The Council may, to the extent the 

Council determines appropriate, accept 

the submission of any data, information, 

and reports voluntarily submitted by 

any nonbank financial company that is 

being considered for a proposed or final 

determination under § 1310.10(a), for 

the purpose of assessing the extent to 

which a nonbank financial company 

poses a threat to the financial stability 

of the United States. 

(c) Consultation. The Council shall 

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 

supervision by the Board of Governors 

under § 1310.10(a) in a timely manner 

before the Council makes any final 

determination under § 1310.10(a) with 

respect to such nonbank financial 

company. 

(d) International coordination. In 

exercising its duties under this part with 

respect to foreign nonbank financial 

companies and cross-border activities 

and markets, the Council, acting 

through its Chairperson or other 

authorized designee, shall consult with 

appropriate foreign regulatory 

authorities, to the extent appropriate. 

(e) Confidentiality—(1) In general. 

The Council shall maintain the 

confidentiality of any data, information, 

and reports submitted under this part. 

(2) Retention of privilege. The 

submission of any non-publicly 

available data or information under this 

part shall not constitute a waiver of, or 

otherwise affect, any privilege arising 

under Federal or State law (including 


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the rules of any Federal or State court) 

to which the data or information is 

otherwise subject. 

(3) Freedom of Information Act. 

Section 552 of Title 5, United States 

Code, including the exceptions 

thereunder, and any regulations 

thereunder adopted by the Council, 

shall apply to any data, information, 

and reports submitted under this part. 

§ 1310.21 Proposed and final 

determinations; notice and opportunity for 

an evidentiary hearing. 

(a) Written notice of consideration of 

determination; submission of materials. 

Before providing a nonbank financial 

company written notice of a proposed 

determination pursuant to paragraph (b) 

of this section, the Council shall provide 

the nonbank financial company— 

(1) Written notice that the Council is 

considering whether to make a proposed 

determination with respect to the 

nonbank financial company under 

§ 1310.10(a); 

(2) An opportunity to submit written 

materials, within such time as the 

Council determines to be appropriate 

(which shall be not less than 30 days 

after the date of receipt by the nonbank 

financial company of the notice 

described in paragraph (a)(1)), to the 

Council to contest the Council’s 

consideration of the nonbank financial 

company for a proposed determination, 

including materials concerning whether, 

in the nonbank financial company’s 

view, material financial distress at the 

nonbank financial company, or the 

nature, scope, size, scale, concentration, 

interconnectedness, or mix of the 

activities of the nonbank financial 

company, could pose a threat to the 

financial stability of the United States; 

and 

(3) Notice when the Council deems its 

evidentiary record regarding such 

nonbank financial company to be 

complete. 

(b) Notice of proposed determination. 

If the Council determines under 

§ 1310.10(a) that a nonbank financial 

company should be supervised by the 

Board of Governors and be subject to 

prudential standards, the Council shall 

provide to the nonbank financial 

company written notice of the proposed 

determination, including an explanation 

of the basis of the proposed 

determination and the date by which an 

evidentiary hearing may be requested by 

the nonbank financial company under 

paragraph (c) of this section. 

(c) Evidentiary hearing. (1) Not later 

than 30 days after the date of receipt by 

a nonbank financial company of the 

notice of proposed determination under 

paragraph (b) of this section, the 

nonbank financial company may 

request, in writing, an opportunity for a 

nonpublic, written or oral evidentiary 

hearing before the Council or its 

representatives to contest the proposed 

determination under § 1310.10(a). 

(2) Upon receipt by the Council of a 

timely request under paragraph (c)(1), 

the Council shall fix a time (not later 

than 30 days after the date of receipt by 

the Council of the request) and place at 

which such nonbank financial company 

may appear, personally or through 

counsel, for a nonpublic evidentiary 

hearing at which the nonbank financial 

company may submit written materials 

(or, at the sole discretion of the Council, 

oral testimony and oral argument) to 

contest the proposed determination 

under § 1310.10(a), including materials 

concerning whether, in the nonbank 

financial company’s view, material 

financial distress at the nonbank 

financial company, or the nature, scope, 

size, scale, concentration, 

interconnectedness, or mix of the 

activities of the nonbank financial 

company, could pose a threat to the 

financial stability of the United States. 

(d) Final determination after 

evidentiary hearing. If the nonbank 

financial company makes a timely 

request for an evidentiary hearing under 

paragraph (c) of this section, the Council 

shall, not later than 60 days after the 

hearing date— 

(1) Determine whether to make a final 

determination under § 1310.10(a); 

(2) Notify the nonbank financial 

company, in writing, of any final 

determination of the Council under 

§ 1310.10(a), which notice shall contain 

a statement of the basis for the decision 

of the Council; and 

(3) If the Council makes a final 

determination under § 1310.10(a), 

publicly announce the final 

determination of the Council. 

(e) No evidentiary hearing requested. 

If a nonbank financial company does 

not make a timely request for an 

evidentiary hearing under paragraph (c) 

of this section or notifies the Council in 

writing that it is not requesting an 

evidentiary hearing under paragraph (c) 

of this section, the Council shall, not 

later than 10 days after the date by 

which the nonbank financial company 

could have requested a hearing under 

paragraph (c) of this section or 10 days 

after the date on which the Council 

receives notice from the nonbank 

financial company that it is not 

requesting an evidentiary hearing, as 

applicable— 

(1) Determine whether to make a final 

determination under § 1310.10(a); 

(2) Notify the nonbank financial 

company, in writing, of any final 

determination of the Council under 

§ 1310.10(a), which notice shall contain 

a statement of the basis for the decision 

of the Council; and 

(3) If the Council makes a final 

determination under § 1310.10(a), 

publicly announce the final 

determination of the Council. 

(f) Time period for consideration. (1) 

If the Council does not make a proposed 

determination under § 1310.10(a) with 

respect to a nonbank financial company 

within 180 days after the date on which 

the nonbank financial company receives 

the notice of completion of the 

Council’s evidentiary record described 

in paragraph (a)(3) of this section, the 

nonbank financial company shall not be 

eligible for a proposed determination 

under § 1310.10(a) unless the Council 

issues a subsequent written notice of 

consideration of determination under 

paragraph (a) of this section to such 

nonbank financial company. 

(2) This paragraph (f) shall not limit 

the Council’s ability to issue a 

subsequent written notice of 

consideration of determination under 

§ 1310.21(a) to any nonbank financial 

company that, within 180 days after the 

date on which such nonbank financial 

company received a notice described in 

paragraph (a)(3) of this section, does not 

become subject to a proposed 

determination under § 1310.10(a). 

§ 1310.22 Emergency exception to 

§ 1310.21. 

(a) Exception to § 1310.21. 

Notwithstanding anything to the 

contrary in § 1310.21, the Council may 

waive or modify any or all of the notice 

and other procedural requirements of 

§ 1310.21 with respect to a nonbank 

financial company if— 

(1) The Council determines that such 

waiver or modification is necessary or 

appropriate to prevent or mitigate 

threats posed by the nonbank financial 

company to the financial stability of the 

United States; and 

(2) The Council provides written 

notice of the waiver or modification 

under this section to the nonbank 

financial company as soon as 

practicable, but not later than 24 hours 

after the waiver or modification is 

granted. Any such notice shall set forth 

the manner and form for transmitting a 

request for an evidentiary hearing under 

paragraph (c) of this section. 

(b) Consultation. (1) In making a 

determination under paragraph (a) of 

this section with respect to a nonbank 

financial company, the Council shall 

consult with the primary financial 

regulatory agency, if any, for such 

nonbank financial company, in such 


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1See 12 U.S.C. 5323. 

2 In addition to these considerations, the Council 

may consider any other risk-related factors that the 

Council deems appropriate. 12 U.S.C. 5323(a)(2)(K) 

and (b)(2)(K). 

time and manner as the Council may 

deem appropriate. 

(2) In making a determination under 

paragraph (a) of this section with 

respect to a foreign nonbank financial 

company, the Council shall consult with 

the appropriate home country 

supervisor, if any, of such foreign 

nonbank financial company, in such 

time and manner as the Council may 

deem appropriate. 

(c) Opportunity for evidentiary 

hearing. (1) If the Council, pursuant to 

paragraph (a) of this section, waives or 

modifies any of the notice or other 

procedural requirements of § 1310.21 

with respect to a nonbank financial 

company, the nonbank financial 

company may request, in writing, an 

opportunity for a nonpublic, written or 

oral evidentiary hearing before the 

Council or its representatives to contest 

such waiver or modification, not later 

than 10 days after the date of receipt by 

the nonbank financial company of the 

notice described in paragraph (a)(2) of 

this section. 

(2) Upon receipt of a timely request 

for an evidentiary hearing under 

paragraph (c)(1), the Council shall fix a 

time (not later than 15 days after the 

date of receipt by the Council of the 

request) and place at which the nonbank 

financial company may appear, 

personally or through counsel, for a 

nonpublic evidentiary hearing at which 

the nonbank financial company may 

submit written materials (or, at the sole 

discretion of the Council, oral testimony 

and oral argument) regarding the waiver 

or modification under this section. 

(d) Notice of final determination. If 

the nonbank financial company makes a 

timely request for an evidentiary 

hearing under paragraph (c) of this 

section, the Council shall, not later than 

30 days after the hearing date— 

(1) Make a final determination 

regarding the waiver or modification 

under this § 1310.22; 

(2) Notify the nonbank financial 

company, in writing, of the final 

determination of the Council regarding 

the waiver or modification under this 

§ 1310.22, which notice shall contain a 

statement of the basis for the final 

decision of the Council; and 

(3) If the Council makes a final 

determination under § 1310.10(a), 

publicly announce the final 

determination of the Council. 

(e) Vote required. Any determination 

of the Council under paragraph (a)(1) of 

this section to waive or modify any of 

the notice or other procedural 

requirements of § 1310.21 shall— 

(1) Be made by the Council and shall 

not be delegated by the Council; and 

(2) Require the vote of not fewer than 

two-thirds of the voting members of the 

Council then serving, including the 

affirmative vote of the Chairperson of 

the Council. 

§ 1310.23 Council reevaluation and 

rescission of determinations. 

(a) Reevaluation and rescission. The 

Council shall, not less frequently than 

annually— 

(1) Reevaluate each currently effective 

determination made under § 1310.10(a); 

and 

(2) Rescind any such determination, if 

the Council determines that the 

nonbank financial company no longer 

meets the standard under § 1310.10(a), 

taking into account the considerations 

in § 1310.11(a) or § 1310.11(b), as 

applicable. 

(b) Notice of reevaluation; submission 

of materials. The Council shall provide 

written notice to each nonbank financial 

company subject to a currently effective 

determination prior to the Council’s 

reevaluation of such determination 

under paragraph (a) of this section and 

shall provide such nonbank financial 

company an opportunity to submit 

written materials, within such time as 

the Council determines to be 

appropriate (which shall be not less 

than 30 days after the date of receipt by 

the nonbank financial company of such 

notice), to the Council to contest the 

determination, including materials 

concerning whether, in the nonbank 

financial company’s view, material 

financial distress at the nonbank 

financial company, or the nature, scope, 

size, scale, concentration, 

interconnectedness, or mix of the 

activities of the nonbank financial 

company, could pose a threat to the 

financial stability of the United States. 

(c) Vote required. Any determination 

of the Council under paragraph (a)(2) of 

this section to rescind a determination 

made with respect to a nonbank 

financial company shall— 

(1) Be made by the Council and shall 

not be delegated by the Council; and 

(2) Require the vote of not fewer than 

two-thirds of the voting members of the 

Council then serving, including the 

affirmative vote of the Chairperson of 

the Council. 

(d) Notice of rescission. If the Council 

rescinds a determination with respect to 

any nonbank financial company under 

paragraph (a) of this section, the Council 

shall notify the nonbank financial 

company, in writing, of such rescission 

and publicly announce such rescission. 

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 

‘‘Board of Governors’’) and be subject to 

prudential standards in accordance with 

Title I of the Dodd-Frank Act if either of two 

standards is met. Under the first standard, 

the Council may subject a nonbank financial 

company to supervision by the Board of 

Governors and prudential standards if the 

Council determines that ‘‘material financial 

distress’’ at the nonbank financial company 

could pose a threat to the financial stability 

of the United States. Under the second 

standard, the Council may determine that a 

nonbank financial company will be 

supervised by the Board of Governors and 

subject to prudential standards if 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 also lists 10 

considerations that the Council must take 

into account in making a determination.2

Section II of this document describes the 

manner in which the Council intends to 

apply the statutory standards and 

considerations in making determinations 

under section 113 of the Dodd-Frank Act. 

First, section II defines ‘‘threat to the 

financial stability of the United States’’ and 

describes channels through which a nonbank 

financial company could pose such a threat. 

Second, it discusses each of the two statutory 

standards for determination. Third, it 

describes the six-category framework that the 

Council intends to use to evaluate nonbank 

financial companies under each of the 10 

statutory considerations. Section II also 

includes lists of sample metrics that may be 

used to evaluate individual nonbank 

financial companies under each of the six 

categories. 

Section III of this document outlines the 

process that the Council intends to follow in 

non-emergency situations when determining 

whether to subject a nonbank financial 

company to Board of Governors supervision 

and prudential standards. Section III also 

provides a detailed description of the 

analysis that the Council intends to conduct 

during each stage of its review. In the first 

stage of the process, the Council will apply 

six uniform quantitative thresholds to 

nonbank financial companies to identify 

those nonbank financial companies that will 

be subject to further evaluation by the 

Council. Because the Council is relying in the 

first stage on quantitative thresholds using 


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information available through existing public 

and regulatory sources, nonbank financial 

companies should be able to assess whether 

they will be subject to further evaluation by 

the Council. During the second stage of the 

evaluation process, the Council will analyze 

the identified nonbank financial companies 

using a broad range of information available 

to the Council primarily through existing 

public and regulatory sources. The third 

stage of the process will involve a 

comprehensive analysis of those nonbank 

financial companies using information 

collected directly from the nonbank financial 

company, as well as the information used in 

the first two stages. 

II. Council Determination Authority and 

Framework 

As noted above, the Council may 

determine that a nonbank financial company 

will be supervised by the Board of Governors 

and be subject to prudential standards if the 

Council determines that (i) material financial 

distress at the nonbank financial company 

could pose a threat to the financial stability 

of the United States (the ‘‘First Determination 

Standard’’) or (ii) the nature, scope, size, 

scale, concentration, interconnectedness, or 

mix of the activities of the nonbank financial 

company could pose a threat to the financial 

stability of the United States (the ‘‘Second 

Determination Standard,’’ and, together with 

the First Determination Standard, the 

‘‘Determination Standards’’). 

The Council intends to interpret the term 

‘‘company’’ broadly with respect to nonbank 

financial companies and other companies in 

connection with section 113 of the DoddFrank Act, to include any corporation, 

limited liability company, partnership, 

business trust, association, or similar 

organization. 

This section provides definitions of the 

terms ‘‘threat to the financial stability of the 

United States’’ and ‘‘material financial 

distress’’ and describes how the Council 

expects to apply the Determination 

Standards. 

a. Threat to the Financial Stability of the 

United States 

The Determination Standards require the 

Council to determine whether a nonbank 

financial company could pose a threat to the 

financial stability of the United States. 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. 

In evaluating a nonbank financial company 

under one of the Determination Standards, 

the Council intends to assess how a nonbank 

financial company’s material financial 

distress or activities could be transmitted to, 

or otherwise affect, other firms or markets, 

thereby causing a broader impairment of 

financial intermediation or of financial 

market functioning. An impairment of 

financial intermediation and financial market 

functioning can occur through several 

channels. The Council has identified the 

following channels as 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: 

• Exposure. A nonbank financial 

company’s creditors, counterparties, 

investors, or other market participants have 

exposure to the nonbank financial company 

that is significant enough to materially 

impair those creditors, counterparties, 

investors, or other market participants and 

thereby pose a threat to U.S. financial 

stability. In its initial analysis of nonbank 

financial companies with respect to this 

channel, the Council expects to consider 

metrics including total consolidated assets, 

credit default swaps outstanding, derivative 

liabilities, total debt outstanding, and 

leverage ratio. 

• Asset liquidation. A nonbank financial 

company holds assets that, if liquidated 

quickly, would cause a fall in asset prices 

and thereby significantly disrupt trading or 

funding in key markets or cause significant 

losses or funding problems for other firms 

with similar holdings. This channel would 

likely be most relevant for a nonbank 

financial company whose funding and liquid 

asset profile makes it likely that it would be 

forced to liquidate assets quickly when it 

comes under financial pressure. For example, 

this could be the case if a large nonbank 

financial company relies heavily on shortterm funding. In its initial analysis of 

nonbank financial companies with respect to 

this channel, the Council expects to consider 

metrics including total consolidated assets 

and short-term debt ratio. 

• Critical function or service. A nonbank 

financial company is no longer able or 

willing to provide a critical function or 

service that is relied upon by market 

participants and for which there are no ready 

substitutes. The analysis of this channel will 

incorporate a review of the competitive 

landscape for markets in which a nonbank 

financial company participates and for the 

services it provides (including the provision 

of liquidity to the U.S. financial system, the 

provision of credit to low-income, minority, 

or underserved communities, or the 

provision of credit to households, businesses 

and state and local governments), the 

nonbank financial company’s market share, 

and the ability of other firms to replace those 

services. Due to the unique ways in which a 

nonbank financial company may provide a 

critical function or service to the market, the 

Council expects to apply company-specific 

analyses with respect to this channel, rather 

than applying a broadly applicable 

quantitative metric. 

The Council believes that the threat a 

nonbank financial company may pose to U.S. 

financial stability through the impairment of 

financial intermediation and financial market 

functioning is likely to be exacerbated if the 

nonbank financial company is sufficiently 

complex, opaque, or difficult to resolve in 

bankruptcy such that its resolution in 

bankruptcy would disrupt key markets or 

have a material adverse impact on other 

financial firms or markets. 

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. 

b. First Determination Standard: Material 

Financial Distress 

Under the First Determination Standard, 

the Council may subject a nonbank financial 

company to supervision by the Board of 

Governors and prudential standards if the 

Council determines that ‘‘material financial 

distress’’ at the nonbank financial company 

could pose a threat to U.S. financial stability. 

The Council believes that material financial 

distress exists when a nonbank financial 

company is in imminent danger of 

insolvency or defaulting on its financial 

obligations. 

For purposes of considering whether a 

nonbank financial company could pose a 

threat to U.S. financial stability under this 

Determination Standard, the Council intends 

to assess the impact of the nonbank financial 

company’s material financial distress in the 

context of a period of overall stress in the 

financial services industry and in a weak 

macroeconomic environment. The Council 

believes this is appropriate because in such 

a context, a nonbank financial company’s 

distress may have a greater effect on U.S. 

financial stability. 

c. Second Determination Standard: Nature, 

Scope, Size, Scale, Concentration, 

Interconnectedness, or Mix of Activities 

Under the Second Determination Standard, 

the Council may subject a nonbank financial 

company to supervision by the Board of 

Governors and prudential standards if the 

Council determines that 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 Council 

believes that this Determination Standard 

will be met if the Council determines that the 

nature of a nonbank financial company’s 

business practices, conduct, or operations 

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

regardless of whether the nonbank financial 

company is experiencing financial distress. 

The Council expects that there likely will be 

significant overlap between the outcome of 

an assessment of a nonbank financial 

company under the First and Second 

Determination Standards, because, in many 

cases, a nonbank financial company that 

could pose a threat to U.S. financial stability 

because of the nature, scope, size, scale, 

concentration, interconnectedness, or mix of 

its activities could also pose a threat to U.S. 

financial stability if it were to experience 

material financial distress. 

d. Analytic Framework for Statutory 

Considerations 

As required by section 113 of the DoddFrank Act, the Council’s determination will 

be based on its judgment that a firm meets 

one of the Determination Standards 

described above. In evaluating whether a firm 

meets one of the Determination Standards, 

the Council will consider each of the 

statutory considerations. The discussion 

below outlines the analytic framework that 


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3The corresponding statutory considerations for 

a foreign nonbank financial company would be 

considered under the relevant categories indicated 

in the table. 

the Council intends to use to organize its 

evaluation of a nonbank financial company 

under the statutory considerations and 

provides additional detail on the key data 

and analyses that the Council intends to use 

to assess the considerations. 

1. Grouping of Statutory Considerations Into 

Six-Category Framework 

The Dodd-Frank Act requires the Council 

to consider 10 considerations (described 

below) when evaluating the potential of a 

nonbank financial company to pose a threat 

to U.S. financial stability. The statute also 

authorizes the Council to consider ‘‘any other 

risk-related factors that the Council deems 

appropriate.’’ These statutory considerations 

will help the Council to evaluate whether 

one of the Determination Standards, as 

described in sections II.b and II.c above, has 

been met. The Council has developed an 

analytic framework that groups all relevant 

factors, including the 10 statutory 

considerations and any additional riskrelated factors, into six categories: size, 

interconnectedness, substitutability, leverage, 

liquidity risk and maturity mismatch, and 

existing regulatory scrutiny. The Council 

expects to use these six categories to guide 

its evaluation of whether a particular 

nonbank financial company meets either 

Determination Standard. However, the 

Council’s ultimate determination decision 

regarding a nonbank financial company will 

not be based on a formulaic application of 

the six categories. Rather, the Council 

intends to analyze a nonbank financial 

company using quantitative and qualitative 

data relevant to each of the six categories, as 

the Council determines is appropriate with 

respect to the particular nonbank financial 

company. 

Each of the six categories reflects a 

different dimension of a nonbank financial 

company’s potential to pose a threat to U.S. 

financial stability. Three of the six 

categories—size, substitutability, and 

interconnectedness—seek to assess the 

potential impact of the nonbank financial 

company’s financial distress on the broader 

economy. Material financial distress at 

nonbank financial companies that are large, 

provide critical financial services for which 

there are few substitutes, or are highly 

interconnected with other financial firms or 

markets are more likely to have a financial 

or operational impact on other companies, 

markets, and consumers that could pose a 

threat to the financial stability of the United 

States. The remaining three categories— 

leverage, liquidity risk and maturity 

mismatch, and existing regulatory scrutiny of 

the nonbank financial company—seek to 

assess the vulnerability of a nonbank 

financial company to financial distress. 

Nonbank financial companies that are highly 

leveraged, have a high degree of liquidity risk 

or maturity mismatch, and are under little or 

no regulatory scrutiny are more likely to be 

more vulnerable to financial distress. 

Each of the statutory considerations in 

sections 113(a)(2) and (b)(2) of the DoddFrank Act would be considered as part of one 

or more of the six categories. This is reflected 

in the following table, using the 

considerations relevant to a U.S. nonbank 

financial company for illustrative purposes.3

Statutory considerations: Category or categories in which this consideration would be addressed: 

(A) The extent of the leverage of the company ................................................................................ Leverage. 

(B) The extent and nature of the off-balance-sheet exposures of the company .............................. Size; interconnectedness. 

(C) The extent and nature of the transactions and relationships of the company with other significant nonbank financial companies and significant bank holding companies.Interconnectedness. 

(D) 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.

Size; substitutability. 

(E) 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.Substitutability. 

(F) 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.

Size; interconnectedness; substitutability. 

(G) The nature, scope, size, scale, concentration, interconnectedness, and mix of the activities of 

the company.

Size; interconnectedness; substitutability. 

(H) The degree to which the company is already regulated by 1 or more primary financial regulatory agencies.Existing regulatory scrutiny. 

(I) The amount and nature of the financial assets of the company .................................................. Size; interconnectedness. 

(J) The amount and types of the liabilities of the company, including the degree of reliance on 

short-term funding.

Liquidity risk and maturity mismatch; size; 

interconnectedness. 

(K) Any other risk-related factors that the Council deems appropriate ............................................. Appropriate category or categories based on 

the nature of the additional risk-related factor. 

2. Six-Category Framework 

The discussion below describes each of the 

six categories and how these categories relate 

to a firm’s likelihood to pose a threat to 

financial stability. The sample metrics set 

forth below under each category are 

representative, not exhaustive, and may not 

apply to all nonbank financial companies 

under evaluation. The Council may apply the 

sample metrics in the context of stressed 

market conditions. 

Interconnectedness 

Interconnectedness captures direct or 

indirect linkages between financial 

companies that may be conduits for the 

transmission of the effects resulting from a 

nonbank financial company’s material 

financial distress or activities. Examples of 

the key conduits through which the effects 

may travel are a nonbank financial 

company’s direct or indirect exposures to 

counterparties (including creditors, trading 

and derivatives counterparties, investors, 

borrowers, and other participants in the 

financial markets). Interconnectedness 

depends not only on the number of 

counterparties that a nonbank financial 

company has, but also on the importance of 

that nonbank financial company to its 

counterparties and the extent to which the 

counterparties are interconnected with other 

financial firms, the financial system and the 

broader economy. The Council’s assessment 

of interconnectedness is intended to 

determine whether a nonbank financial 

company’s exposure to its counterparties 

would pose a threat to U.S. financial stability 

if that company encountered material 

financial distress. 

For example, metrics that may be used to 

assess interconnectedness include: 

• Counterparties’ exposures to a nonbank 

financial company, including derivatives, 

reinsurance, loans, securities borrowing and 

lending, and lines of credit that facilitate 

settlement and clearing activities. 

• Number, size, and financial strength of a 

nonbank financial company’s counterparties, 

including the proportion of its 

counterparties’ exposure to the nonbank 

financial company relative to the 

counterparties’ capital. 

• Identity of a nonbank financial 

company’s principal contractual 

counterparties, which reflects the 

concentration of the nonbank financial 


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company’s assets financed by particular firms 

and the importance of the nonbank financial 

company’s counterparties to the market. 

• Aggregate amounts of a nonbank 

financial company’s gross or net derivatives 

exposures and the number of its derivatives 

counterparties. 

• The amount of gross notional credit 

default swaps outstanding for which a 

nonbank financial company or its parent is 

the reference entity. 

• Total debt outstanding, which captures a 

nonbank financial company’s sources of 

funding. 

• Reinsurance obligations, which measure 

the reinsurance risk assumed from nonaffiliates net of retrocession. 

Substitutability 

Substitutability captures the extent to 

which other firms could provide similar 

financial services in a timely manner at a 

similar price and quantity if a nonbank 

financial company withdraws from a 

particular market. Substitutability also 

captures situations in which a nonbank 

financial company is the primary or 

dominant provider of services in a market 

that the Council determines to be essential to 

U.S. financial stability. An example of the 

manner in which the Council may determine 

a nonbank financial company’s 

substitutability is to consider its market 

share. The Council’s evaluation of a nonbank 

financial company’s market share regarding a 

particular product or service will include 

assessments of the ability of the nonbank 

financial company’s competitors to expand to 

meet market needs; the costs that market 

participants would incur if forced to switch 

providers; the timeframe within which a 

disruption in the provision of the product or 

service would materially affect market 

participants or market functioning; and the 

economic implications of such a disruption. 

Concern about a potential lack of 

substitutability could be greater if a nonbank 

financial company and its competitors are 

likely to experience stress at the same time 

because they are exposed to the same risks. 

The Council may also analyze a nonbank 

financial company’s core operations and 

critical functions and the importance of those 

operations and functions to the U.S. financial 

system and assess how those operations and 

functions would be performed by the 

nonbank financial company or other market 

participants in the event of the nonbank 

financial company’s material financial 

distress. The Council also intends to consider 

substitutability with respect to any nonbank 

financial company with global operations to 

identify the substitutability of critical market 

functions that the company provides in the 

United States in the event of material 

financial distress of a foreign parent 

company. 

For example, metrics that may be used to 

assess substitutability include: 

• The market share, using the appropriate 

quantitative measure (such as loans 

originated, loans outstanding, and notional 

transaction volume) of a nonbank financial 

company and its competitors in the market 

under consideration. 

• The stability of market share across the 

firms in the market over time. 

• The market share of the company and its 

competitors for products or services that 

serve a substantially similar economic 

function as the primary market under 

consideration. 

Size 

Size captures the amount of financial 

services or financial intermediation that a 

nonbank financial company provides. Size 

also may affect the extent to which the effects 

of a nonbank financial company’s financial 

distress are transmitted to other firms and to 

the financial system. For example, financial 

distress at an extremely large nonbank 

financial company that is highly 

interconnected likely would transmit risk on 

a larger scale than would financial distress at 

a smaller nonbank financial company that is 

similarly interconnected. Size is 

conventionally measured by the assets, 

liabilities and capital of the firm. However, 

such measures of size may not provide 

complete or accurate assessments of the scale 

of a nonbank financial company’s risk 

potential. Thus, the Council also intends to 

take into account off-balance sheet assets and 

liabilities and assets under management in a 

manner that recognizes the unique and 

distinct nature of these classes. Other 

measures of size, such as numbers of 

customers and counterparties, may also be 

relevant. 

For example, metrics that may be used to 

assess size include: 

• Total consolidated assets or liabilities, as 

determined under generally accepted 

accounting principles in the United States 

(‘‘GAAP’’) or the nonbank financial 

company’s applicable financial reporting 

standards, depending on the availability of 

data and the stage of the determination 

process. 

• Total risk-weighted assets, as appropriate 

for different industry sectors. 

• Off-balance sheet exposures where a 

nonbank financial company has a risk of loss, 

including, for example, lines of credit. For 

foreign nonbank financial companies, this 

would be evaluated based on the extent and 

nature of U.S.-related off-balance sheet 

exposures. 

• The extent to which assets are managed 

rather than owned by a nonbank financial 

company and the extent to which ownership 

of assets under management is diffuse. 

• Direct written premiums, as reported by 

insurance companies. This is the aggregate of 

direct written premiums reported by 

insurance entities under all lines of business 

and serves as a proxy for the amount of 

insurance underwritten by the insurance 

entities. 

• Risk in force, which is the aggregate risk 

exposure from risk underwritten in insurance 

related to certain financial risks, such as 

mortgage insurance. 

• Total loan originations, by loan type, in 

number and dollar amount. 

Leverage 

Leverage captures a company’s exposure or 

risk in relation to its equity capital. Leverage 

amplifies a company’s risk of financial 

distress in two ways. First, by increasing a 

company’s exposure relative to capital, 

leverage raises the likelihood that a company 

will suffer losses exceeding its capital. 

Second, by increasing the size of a company’s 

liabilities, leverage raises a company’s 

dependence on its creditors’ willingness and 

ability to fund its balance sheet. Leverage can 

also amplify the impact of a company’s 

distress on other companies, both directly, by 

increasing the amount of exposure that other 

firms have to the company, and indirectly, by 

increasing the size of any asset liquidation 

that the company is forced to undertake as 

it comes under financial pressure. Leverage 

can be measured by the ratio of assets to 

capital, but it can also be defined in terms 

of risk, as a measure of economic risk relative 

to capital. The latter measurement can better 

capture the effect of derivatives and other 

products with embedded leverage on the risk 

undertaken by a nonbank financial company. 

For example, metrics that may be used to 

assess leverage include: 

• Total assets and total debt measured 

relative to total equity, which is intended to 

measure financial leverage. 

• Gross notional exposure of derivatives 

and off-balance sheet obligations relative to 

total equity or to net assets under 

management, which is intended to show how 

much off-balance sheet leverage a nonbank 

financial company may have. 

• The ratio of risk to statutory capital, 

which is relevant to certain insurance 

companies and is intended to show how 

much risk exposure a nonbank financial 

company has in relation to its ability to 

absorb loss. 

• Changes in leverage ratios, which may 

indicate that a nonbank financial company is 

rapidly increasing its risk profile. 

Liquidity Risk and Maturity Mismatch 

Liquidity risk generally refers to the risk 

that a company may not have sufficient 

funding to satisfy its short-term needs, either 

through its cash flows, maturing assets, or 

assets salable at prices equivalent to book 

value, or through its ability to access funding 

markets. For example, if a company holds 

assets that are illiquid or that are subject to 

significant decreases in market value during 

times of market stress, the company may be 

unable to liquidate its assets effectively in 

response to a loss of funding. In order to 

assess liquidity, the Council may examine a 

nonbank financial company’s assets to 

determine if it possesses cash instruments or 

readily marketable securities, such as 

Treasury securities, which could reasonably 

be expected to have a liquid market in times 

of distress. The Council may also review a 

nonbank financial company’s debt profile to 

determine if it has adequate long-term 

funding, or can otherwise mitigate liquidity 

risk. Liquidity problems also can arise from 

a company’s inability to roll maturing debt or 

to satisfy margin calls, and from demands for 

additional collateral, depositor withdrawals, 

draws on committed lines, and other 

potential draws on liquidity. 

A maturity mismatch generally refers to the 

difference between the maturities of a 

company’s assets and liabilities. A maturity 

mismatch affects a company’s ability to 

survive a period of stress that may limit its 

access to funding and to withstand shocks in 

the yield curve. For example, if a company 

relies on short-term funding to finance 


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4See 12 U.S.C. 5322(d)(3). 

5See 12 CFR 1310.21(c). 

6While the Council expects that its 

determinations under section 113 of the DoddFrank Act will be with respect to individual legal 

entities, the Council has authority to assess 

nonbank financial companies, and their 

relationships with other nonbank financial 

companies and market participants, in a manner 

longer-term positions, it will be subject to 

significant refunding risk that may force it to 

sell assets at low market prices or potentially 

suffer through significant margin pressure. 

However, maturity mismatches are not 

confined to the use of short-term liabilities 

and can exist at any point in the maturity 

schedule of a nonbank financial company’s 

assets and liabilities. For example, in the case 

of a life insurance company, liabilities may 

have maturities of 30 years or more, whereas 

the market availability of equivalently longterm assets may be limited, exposing the 

company to interest rate fluctuations and 

reinvestment risk. 

For example, metrics that may be used to 

assess liquidity and maturity mismatch 

include: 

• Fraction of assets that are classified as 

level 2 and level 3 under applicable 

accounting standards, as a measure of how 

much of a nonbank financial company’s 

balance sheet is composed of hard-to-value 

and potentially illiquid securities. 

• Liquid asset ratios, which are intended 

to indicate a nonbank financial company’s 

ability to repay its short-term debt. 

• The ratio of unencumbered and highly 

liquid assets to the net cash outflows that a 

nonbank financial company could encounter 

in a short-term stress scenario. 

• Callable debt as a fraction of total debt, 

which provides one measure of a nonbank 

financial company’s ability to manage its 

funding position in response to changes in 

interest rates. 

• Asset-backed funding versus other 

funding, to determine a nonbank financial 

company’s susceptibility to distress in 

particular credit markets. 

• Asset-liability duration and gap analysis, 

which is intended to indicate how well a 

nonbank financial company is matching the 

re-pricing and maturity of the nonbank 

financial company’s assets and liabilities. 

• Short-term debt as a percentage of total 

debt and as a percentage of total assets, 

which indicates a nonbank financial 

company’s reliance on short-term debt 

markets. 

Existing Regulatory Scrutiny 

The Council will consider the extent to 

which nonbank financial companies are 

already subject to regulation, including the 

consistency of that regulation across nonbank 

financial companies within a sector, across 

different sectors, and providing similar 

services, and the statutory authority of those 

regulators. 

For example, metrics that may be used to 

assess existing regulatory scrutiny include: 

• The extent of state or federal regulatory 

scrutiny, including processes or systems for 

peer review; inter-regulatory coordination 

and cooperation; and whether existing 

regulators have the ability to impose detailed 

and timely reporting obligations, capital and 

liquidity requirements, and enforcement 

actions, and to resolve the company. 

• Existence and effectiveness of 

consolidated supervision, and a 

determination of whether and how nonregulated entities and groups within a 

nonbank financial company are supervised 

on a group-wide basis. 

• For entities based outside the United 

States, the extent to which a nonbank 

financial company is subject to prudential 

standards on a consolidated basis in its home 

country that are administered and enforced 

by a comparable foreign supervisory 

authority. 

III. The Determination Process 

The Council expects generally to follow a 

three-stage process of increasingly in-depth 

evaluation and analysis leading up to a 

proposed determination (a ‘‘Proposed 

Determination’’) that a nonbank financial 

company could pose a threat to the financial 

stability of the United States. Quantitative 

metrics, together with qualitative analysis, 

will inform the judgment of the Council 

when it is evaluating a nonbank financial 

company for a Proposed Determination. The 

purpose of this process is to help determine 

whether a nonbank financial company could 

pose a threat to the financial stability of the 

United States. 

In the first stage of the process (‘‘Stage 1’’), 

a set of uniform quantitative metrics will be 

applied to a broad group of nonbank 

financial companies in order to identify 

nonbank financial companies for further 

evaluation and to provide clarity for nonbank 

financial companies that likely will not be 

subject to further evaluation. In Stage 1, the 

Council will rely solely on information 

available through existing public and 

regulatory sources. The purpose of Stage 1 is 

to enable the Council to identify a group of 

nonbank financial companies that are most 

likely to satisfy one of the Determination 

Standards. 

In the second stage (‘‘Stage 2’’), the 

nonbank financial companies identified in 

Stage 1 will be analyzed and prioritized, 

based on a wide range of quantitative and 

qualitative information available to the 

Council primarily through public and 

regulatory sources. The Council will also 

begin the consultation process with the 

primary financial regulatory agencies or 

home country supervisors, as appropriate. As 

part of that consultation process, the Council 

intends to 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. The Council also intends to 

fulfill its statutory obligation to rely 

whenever possible on information available 

through the Office of Financial Research (the 

‘‘OFR’’), member agencies, or the nonbank 

financial company’s primary financial 

regulatory agencies before requiring the 

submission of reports from any nonbank 

financial company.4

Following Stage 2, nonbank financial 

companies that are selected for additional 

review will receive notice that they are being 

considered for a Proposed Determination and 

will be subject to in-depth evaluation during 

the third stage of review (‘‘Stage 3’’). Stage 3 

will involve the evaluation of information 

collected directly from the nonbank financial 

company, in addition to the information 

considered during Stages 1 and 2. At the end 

of Stage 3, the Council may consider whether 

to make a Proposed Determination with 

respect to the nonbank financial company. If 

a Proposed Determination is made by the 

Council, the nonbank financial company may 

request a hearing in accordance with section 

113(e) of the Dodd-Frank Act and 

§ 1310.21(c) of the Council’s rule.5

The Council expects to follow this threestage process and to consider the categories, 

metrics, thresholds, and channels described 

in this guidance to assess a nonbank financial 

company’s potential to pose a threat to U.S. 

financial stability. In addition to the 

information described herein that the 

Council generally expects to consider, the 

Council also will consider quantitative and 

qualitative information that it deems relevant 

to a particular nonbank financial company, 

as each determination will be made on a 

company-specific basis. The Council may 

consider any nonbank financial company for 

a Proposed Determination at any point in the 

three-stage evaluation process described in 

this guidance if the Council believes such 

company could pose a threat to U.S. financial 

stability. 

a. Stage 1: Initial Identification of Nonbank 

Financial Companies for Evaluation 

In Stage 1, the Council will seek to identify 

a set of nonbank financial companies that 

merit company-specific evaluation. In this 

stage, the Council intends to apply 

quantitative thresholds to a broad group of 

nonbank financial companies. A nonbank 

financial company that is selected for further 

evaluation during Stage 1 will be assessed 

during Stage 2. During the Stage 1 process, 

the Council will evaluate nonbank financial 

companies using only data available to the 

Council, such as publicly available 

information and information member 

agencies possess in their supervisory 

capacities. 

In the Stage 1 quantitative analysis, the 

Council intends to apply thresholds that 

relate to the framework categories of size, 

interconnectedness, leverage, and liquidity 

risk and maturity mismatch. These 

thresholds were selected based on (1) their 

applicability to nonbank financial companies 

that operate in different types of financial 

markets and industries, (2) the meaningful 

initial assessment that such thresholds 

provide regarding the potential for a nonbank 

financial company to pose a threat to 

financial stability in diverse financial 

markets, and (3) the current availability of 

data. These thresholds are intended to 

measure both the susceptibility of a nonbank 

financial company to financial distress and 

the potential for that nonbank financial 

company’s financial distress to spread 

throughout the financial system. A nonbank 

financial company will be evaluated further 

in Stage 2 if it meets both the total 

consolidated assets threshold and any one of 

the other thresholds.6 The thresholds are: 


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that addresses the statutory considerations and such 

other factors as the Council deems appropriate. For 

example, for purposes of applying the six 

thresholds to investment funds (including private 

equity firms and hedge funds), the Council may 

consider the aggregate risks posed by separate funds 

that are managed by the same adviser, particularly 

if the funds’ investments are identical or highly 

similar. In performing this analysis, the Council 

may use data reported on Form PF with the 

Securities and Exchange Commission or the 

Commodity Futures Trading Commission. 

• Total Consolidated Assets. The Council 

intends to apply a size threshold of $50 

billion in total consolidated assets. This 

threshold is consistent with the Dodd-Frank 

Act threshold of $50 billion in assets for 

subjecting bank holding companies to 

enhanced prudential standards. 

• Credit Default Swaps Outstanding. The 

Council intends to apply a threshold of $30 

billion in gross notional credit default swaps 

(‘‘CDS’’) outstanding for which a nonbank 

financial company is the reference entity. 

Gross notional value equals the sum of CDS 

contracts bought (or equivalently sold). If the 

amount of CDS sold on a particular nonbank 

financial company is greater than $30 billion, 

this indicates that a large number of 

institutions may be exposed to that nonbank 

financial company and that if the nonbank 

financial company fails, a significant number 

of financial market participants may be 

affected. This threshold was selected based 

on an analysis of the distribution of 

outstanding CDS data for nonbank financial 

companies included in a list of the top 1,000 

CDS reference entities. 

• Derivative Liabilities. The Council 

intends to apply a threshold of $3.5 billion 

of derivative liabilities. Derivative liabilities 

equal the fair value of derivative contracts in 

a negative position. For nonbank financial 

companies that disclose the effects of master 

netting agreements and cash collateral held 

with the same counterparty on a net basis, 

the Council intends to calculate derivative 

liabilities after taking into account the effects 

of these arrangements. This threshold serves 

as a proxy for interconnectedness, as a 

nonbank financial company that has a greater 

level of derivative liabilities would have 

higher counterparty exposure throughout the 

financial system. 

• Total Debt Outstanding. The Council 

intends to apply a threshold of $20 billion in 

total debt outstanding. The Council will 

define total debt outstanding broadly and 

regardless of maturity to include loans 

(whether secured or unsecured), bonds, 

repurchase agreements, commercial paper, 

securities lending arrangements, surplus 

notes (for insurance companies), and other 

forms of indebtedness. This threshold serves 

as a proxy for interconnectedness, as 

nonbank financial companies with a large 

amount of outstanding debt are generally 

more interconnected with the broader 

financial system, in part because financial 

institutions hold a large proportion of 

outstanding debt. An analysis of the 

distribution of debt outstanding for a sample 

of nonbank financial companies was 

performed to determine the $20 billion 

threshold. Historical testing of this threshold 

demonstrated that it would have captured 

many of the nonbank financial companies 

that encountered material financial distress 

during the financial crisis in 2007–2008, 

including Bear Stearns, Countrywide, and 

Lehman Brothers. 

• Leverage Ratio. The Council intends to 

apply a threshold leverage ratio of total 

consolidated assets (excluding separate 

accounts) to total equity of 15 to 1. The 

Council intends to exclude separate accounts 

from this calculation because separate 

accounts are not available to claims by 

general creditors of a nonbank financial 

company. Measuring leverage in this manner 

benefits from simplicity, availability and 

comparability across industries. An analysis 

of the distribution of the historical leverage 

ratios of large financial institutions was used 

to identify the 15 to 1 threshold. Historical 

testing of this threshold demonstrated that it 

would have captured the major nonbank 

financial companies that encountered 

material financial distress and posed a threat 

to U.S. financial stability during the financial 

crisis, including Bear Stearns, Countrywide, 

IndyMac Bancorp, and Lehman Brothers. 

• Short-Term Debt Ratio. The Council 

intends to apply a threshold ratio of total 

debt outstanding (as defined above) with a 

maturity of less than 12 months to total 

consolidated assets (excluding separate 

accounts) of 10 percent. An analysis of the 

historical distribution of the short-term debt 

ratios of large financial institutions was used 

to determine the 10 percent threshold. 

Historical testing of this threshold 

demonstrated that it would have captured a 

number of the nonbank financial companies 

that faced short-term funding issues during 

the financial crisis, including Bear Stearns 

and Lehman Brothers. 

The Council intends generally to apply the 

Stage 1 thresholds using GAAP when such 

information is available. If GAAP information 

with respect to a nonbank financial company 

is not available, the Council may rely on data 

reported under statutory accounting 

principles, international financial reporting 

standards, or such other data as are available 

to the Council. 

For purposes of evaluating any U.S. 

nonbank financial company, the Council 

intends to apply each of the Stage 1 

thresholds based on the global assets, 

liabilities and operations of the company and 

its subsidiaries. In contrast, for purposes of 

evaluating any foreign nonbank financial 

company, the Council intends to calculate 

the Stage 1 thresholds based solely on the 

U.S. assets, liabilities and operations of the 

foreign nonbank financial company and its 

subsidiaries. 

The Council intends to reapply the Stage 

1 thresholds to nonbank financial companies 

using the most recently available data on a 

quarterly basis, or less frequently for 

nonbank financial companies with respect to 

which quarterly data are unavailable. 

The Council intends to review the 

appropriateness of both the Stage 1 

thresholds and the levels of the thresholds 

that are specified in dollars as needed, but at 

least every five years, and to adjust the 

thresholds and levels as the Council may 

deem advisable. 

The Stage 1 thresholds are intended to 

identify nonbank financial companies for 

further evaluation by the Council and to help 

a nonbank financial company predict 

whether such company will be subject to 

additional review. Because the uniform 

quantitative thresholds may not capture all 

types of nonbank financial companies and all 

of the potential ways in which a nonbank 

financial company could pose a threat to 

financial stability, the Council may initially 

evaluate any nonbank financial company 

based on other firm-specific qualitative or 

quantitative factors, irrespective of whether 

such company meets the thresholds in Stage 

1. 

A nonbank financial company that is 

identified for further evaluation in Stage 1 

would be further assessed during Stage 2 (the 

‘‘Stage 2 Pool’’). 

b. Stage 2: Review and Prioritization of Stage 

2 Pool 

After the Stage 2 Pool has been identified, 

the Council intends to conduct a robust 

analysis of the potential threat that each of 

those nonbank financial companies could 

pose to U.S. financial stability. In general, 

this analysis will be based on information 

already available to the Council through 

existing public and regulatory sources, 

including information possessed by the 

company’s primary financial regulatory 

agency or home country supervisor, as 

appropriate, and information voluntarily 

submitted by the company. In contrast to the 

application of uniform quantitative 

thresholds to a broad group of nonbank 

financial companies in Stage 1, the Council 

intends to evaluate the risk profile and 

characteristics of each individual nonbank 

financial company in the Stage 2 Pool based 

on a wide range of quantitative and 

qualitative industry-specific and companyspecific factors. This analysis will use the 

six-category analytic framework described in 

section II.d above. In addition, the Stage 2 

evaluation will include a review, based on 

available data, of qualitative factors, 

including whether the resolution of a 

nonbank financial company, as described 

below, could pose a threat to U.S. financial 

stability, and the extent to which the 

nonbank financial company is subject to 

regulation. 

Based on this analysis, the Council intends 

to contact those nonbank financial 

companies that the Council believes merit 

further evaluation in Stage 3 (the ‘‘Stage 3 

Pool’’). 

c. Stage 3: Review of Stage 3 Pool 

In Stage 3, the Council, working with the 

OFR, will conduct a review of each nonbank 

financial company in the Stage 3 Pool using 

information collected directly from the 

nonbank financial company, as well as the 

information used in the first two stages. The 

review will focus on whether the nonbank 

financial company could pose a threat to U.S. 

financial stability because of the company’s 

material financial distress or the nature, 

scope, size, scale, concentration, 

interconnectedness, or mix of the activities of 

the company. The transmission channels 

discussed above, and other appropriate 

factors, will be used to evaluate a nonbank 

financial company’s potential to pose a threat 


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21662 Federal Register / Vol. 77, No. 70 / Wednesday, April 11, 2012 / Rules and Regulations 

7See section 1310.21(a) of the rule. 

8Under section 112(d) of the Dodd-Frank Act, if 

the Council is unable to determine whether a U.S. 

nonbank financial company poses a threat to U.S. 

financial stability based on such information, the 

Council may request that the Board of Governors 

conduct an examination of the nonbank financial 

company to determine whether it should be 

supervised by the Board of Governors. 

9See 12 CFR 1310.21(c). 

10See 12 CFR 1310.21(d)(3), 1310.21(e)(3) and 

1310.22(d)(3). 

to U.S. financial stability. The analytic 

framework consisting of the six categories set 

forth above, and the metrics used to measure 

each of the six categories, will assist the 

Council in assessing the extent to which the 

transmission of material financial distress is 

likely to occur. 

Each nonbank financial company in the 

Stage 3 Pool will receive a notice (a ‘‘Notice 

of Consideration’’) that the nonbank financial 

company is under consideration for a 

Proposed Determination. The Notice of 

Consideration likely will include a request 

that the nonbank financial 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.7 This information will generally 

be collected by the OFR.8 Before requiring 

the submission of reports from any nonbank 

financial company that is regulated by a 

member agency or any 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. 

Information requests likely will involve 

both qualitative and quantitative data. 

Information relevant to the Council’s analysis 

may include confidential business 

information such as internal assessments, 

internal risk management procedures, 

funding details, counterparty exposure or 

position data, strategic plans, resolvability, 

potential acquisitions or dispositions, and 

other anticipated changes to the nonbank 

financial company’s business or structure 

that could affect the threat to U.S. financial 

stability posed by the nonbank financial 

company. 

In evaluating qualitative factors during 

Stage 3, the Council expects to have access, 

to a greater degree than during earlier stages 

of review, to information relating to factors 

that are not easily quantifiable or that may 

not directly cause a company to pose a threat 

to financial stability, but could mitigate or 

aggravate the potential of a nonbank financial 

company to pose a threat to the United 

States. Such factors may include the opacity 

of the nonbank financial company’s 

operations, its complexity, and the extent to 

which it is subject to existing regulatory 

scrutiny and the nature of such scrutiny. 

The Stage 3 analysis will also include an 

evaluation of a nonbank financial company’s 

resolvability, which may mitigate or 

aggravate the potential of a nonbank financial 

company to pose a threat to U.S. financial 

stability. An evaluation of a nonbank 

financial company’s resolvability entails an 

assessment of the complexity of the nonbank 

financial company’s legal, funding, and 

operational structure, and any obstacles to 

the rapid and orderly resolution of the 

nonbank financial company in a manner that 

would mitigate the risk that the nonbank 

financial company’s failure would have a 

material adverse effect on financial stability. 

In addition to the factors described above, a 

nonbank financial company’s resolvability is 

also a function of legal entity and crossborder operations issues. These factors 

include the ability to separate functions and 

spin off services or business lines; the 

likelihood of preserving franchise value in a 

recovery or resolution scenario, and of 

maintaining continuity of critical services 

within the existing or in a new legal entity 

or structure; the degree of the nonbank 

financial company’s intra-group dependency 

for liquidity and funding, payment operation, 

and risk management needs; and the size and 

nature of the nonbank financial company’s 

intra-group transactions. 

The Council anticipates that the 

information necessary to conduct an in-depth 

analysis of a particular nonbank financial 

company may vary significantly based on the 

nonbank financial company’s business and 

activities and the information already 

available to the Council from existing public 

sources and domestic or foreign regulatory 

authorities. The Council will also consult 

with the primary financial regulatory agency, 

if any, for each nonbank financial company 

or subsidiary of a nonbank financial 

company under consideration in a timely 

manner before the Council makes any final 

determination with respect to such nonbank 

financial company, and with appropriate 

foreign regulatory authorities, to the extent 

appropriate. 

Before making a Proposed Determination, 

the Council intends to notify each nonbank 

financial company in the Stage 3 Pool when 

the Council believes that the evidentiary 

record regarding such nonbank financial 

company is complete. 

Based on the analysis performed in Stages 

2 and 3, a nonbank financial company will 

be considered for a Proposed Determination. 

Before a vote of the Council with respect to 

a particular nonbank financial company, the 

Council members will review information 

relevant to the consideration of the nonbank 

financial company for a Proposed 

Determination. After this review, the Council 

may, by a vote of two-thirds of its members 

(including an affirmative vote of the Council 

Chairperson), make a Proposed 

Determination with respect to the nonbank 

financial company. Following a Proposed 

Determination, the Council intends to 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. 

The Council expects to notify any nonbank 

financial company in the Stage 3 Pool if the 

nonbank financial company, either before or 

after a Proposed Determination of such 

nonbank financial company, ceases to be 

considered for determination. Any nonbank 

financial company that ceases to be 

considered at any time in the Council’s 

determination process may be considered for 

a Proposed Determination in the future at the 

Council’s discretion. 

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. If the 

nonbank financial company requests a 

hearing in accordance with the procedures 

set forth in § 1310.21(c) of the Council’s 

rule,9 the Council will set a time and place 

for such hearing. The Council will (after a 

hearing, if a hearing is requested), determine 

by a vote of two-thirds of the voting members 

of the Council (including the affirmative vote 

of the Chairperson) whether to subject such 

company to supervision by the Board of 

Governors and prudential standards. The 

Council will provide the nonbank financial 

company with written notice of the Council’s 

final determination, including an explanation 

of the basis for the Council’s decision. When 

practicable and consistent with the purposes 

of the determination process, the Council 

intends to provide a nonbank financial 

company with a 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.10 The Council does not intend 

to publicly announce the name of any 

nonbank financial company that is under 

evaluation for a determination prior to a final 

determination with respect to such company. 

In accordance with section 113(h) of 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. 

Dated: April 3, 2012. 

Rebecca Ewing, 

Acting Executive Secretary, Department of 

the Treasury. 

[FR Doc. 2012–8627 Filed 4–10–12; 8:45 am] 

BILLING CODE 4810–25–P–P 

DEPARTMENT OF TRANSPORTATION 

Federal Aviation Administration 

14 CFR Part 71 

[Docket No. FAA–2012–0099; Airspace 

Docket No. 12–ASO–11] 

Amendment of Class D Airspace; 

Cocoa Beach, FL 

AGENCY: Federal Aviation 

Administration (FAA), DOT. 

ACTION: Final rule, technical 

amendment. 

SUMMARY: This action amends Class D 

airspace at Cape Canaveral Skid Strip, 

Cocoa Beach, FL, by correcting the 

geographic coordinates of the airport to 

aid in the navigation of our National 

Airspace System and by removing the 


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