64264 Federal Register / Vol. 76, No. 201 / Tuesday, October 18, 2011 / Proposed Rules 

for withdrawal not later than the banking day 

after the business day on which such funds 

are received (12 U.S.C. 4002(a)). That act also 

preempts any provision of state law that was 

not effective on September 1, 1989, that is 

inconsistent with that act or its implementing 

Regulation CC (12 CFR 229). Accordingly, the 

Expedited Funds Availability Act and 

Regulation CC may preempt section 4A– 

404(a) as enacted in any state. In order to 

ensure that section 4A–404(a), or other 

provisions of article 4A, as incorporated in 

subpart B of this part, do not take precedence 

over provisions of the Expedited Funds 

Availability Act, this section provides that 

where subpart B of this part establishes rights 

or obligations that are also governed by the 

Expedited Funds Availability Act or 

Regulation CC, the Expedited Funds 

Availability Act or Regulation CC provision 

shall apply and subpart B of this part shall 

not apply. 

* * * * * 

Section 210.26—Definitions 

* * * * * 

(i) Payment Order. (1) The definition of 

‘‘payment order’’ in subpart B of this part 

differs from the section 4A–103(a)(1) 

definition. The subpart B definition clarifies 

that, for the purposes of Subpart B of this 

part, automated clearinghouse transfers and 

certain messages that are transmitted through 

Fedwire are not payment orders. Federal 

Reserve Banks and banks participating in 

Fedwire send various types of messages 

relating to payment orders or to other 

matters, through Fedwire, that are not 

intended to be payment orders. Under the 

subpart B definition, these messages, and 

messages involved with automated 

clearinghouse transfers, are not ‘‘payment 

orders’’ and therefore are not governed by 

this subpart. The operating circulars of the 

Federal Reserve Banks specify those 

messages that may be transmitted through 

Fedwire but that are not payment orders. 

(2) In some cases, messages sent through 

Fedwire, such as certain requests for credit 

transfer, may be payment orders under article 

4A, but are not treated as payment orders 

under subpart B because they are not an 

instruction to a Federal Reserve Bank to pay 

money. 

(3) This subpart and article 4A govern a 

payment order even though the originator’s 

or beneficiary’s account may be a consumer 

account established primarily for personal, 

family, or household purposes. Under section 

4A–108, article 4A does not apply to a funds 

transfer any part of which is governed by the 

Electronic Fund Transfer Act. That act, and 

Regulation E implementing it, do not apply 

to funds transfers through Fedwire (see 15 

U.S.C. 1693a(6)(B) and 12 CFR 205.3(b)), 

except that section 919 of the Electronic 

Fund Transfer Act may govern a Fedwire 

funds transfer that is a ‘‘remittance transfer.’’ 

Such remittance transfers that are Fedwire 

funds transfers continue to be governed by 

this subpart. Thus, this subpart applies to all 

funds transfers through Fedwire even though 

some such transfers involve originators or 

beneficiaries that are consumers. (See also 

section 210.25(b) and accompanying 

commentary.) 

* * * * * 

Section 210.32—Federal Reserve Bank 

Liability; Payment of Interest 

* * * * * 

(b) Payment of interest. (1) Under article 

4A, a Federal Reserve Bank may be required 

to pay compensation in the form of interest 

to another party in connection with its 

handling of a funds transfer. For example, 

payment of compensation in the form of 

interest is required in certain situations 

pursuant to sections 4A–204 (relating to 

refund of payment and duty of customer to 

report with respect to unauthorized payment 

order), 4A–209 (relating to acceptance of 

payment order), 4A–210 (relating to rejection 

of payment order), 4A–304 (relating to duty 

of sender to report erroneously executed 

payment order), 4A–305 (relating to liability 

for late or improper execution or failure to 

execute a payment order), 4A–402 (relating to 

obligation of sender to pay receiving bank), 

and 4A–404 (relating to obligation of 

beneficiary’s bank to pay and give notice to 

beneficiary). Under section 4A–506(a), the 

amount of such interest may be determined 

by agreement between the sender and 

receiving bank or by funds-transfer system 

rule. If there is no such agreement, under 

section 4A–506(b), the amount of interest is 

based on the federal funds rate. Section 

210.32(b) requires Federal Reserve Banks to 

provide compensation through an explicit 

interest payment. 

(2) Interest would be calculated in 

accordance with the procedures specified in 

section 4A–506(b). Similarly, compensation 

in the form of explicit interest will be paid 

to government senders, receiving banks, or 

beneficiaries described in section 210.25(d) if 

they are entitled to interest under this 

subpart. A Federal Reserve Bank may also, in 

its discretion, pay explicit interest directly to 

a remote party to a Fedwire funds transfer 

that is entitled to interest, rather than 

providing compensation to its direct sender 

or receiving bank. 

(3) If a bank that received an explicit 

interest payment is not the party entitled to 

interest compensation under article 4A, the 

bank must pass the benefit of the explicit 

interest payment made to it to the party that 

is entitled to compensation in the form of 

interest from a Federal Reserve Bank. The 

benefit may be passed on either in the form 

of a direct payment of interest or in the form 

of a compensating balance, if the party 

entitled to interest agrees to accept the other 

form of compensation, and the value of the 

compensating balance is at least equivalent to 

the value of the explicit interest that 

otherwise would have been provided. 

By order of the Board of Governors of the 

Federal Reserve System, October 7, 2011. 

Jennifer J. Johnson, 

Secretary of the Board. 

[FR Doc. 2011–26811 Filed 10–17–11; 8:45 am] 

BILLING CODE 6210–01–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: Second notice of proposed 

rulemaking and proposed 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 

require a nonbank financial company to 

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 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. 

The proposed rule and attached 

guidance 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. The Council issued an 

advance notice of proposed rulemaking 

on October 6, 2010, and a notice of 

proposed rulemaking on January 26, 

2011, regarding determinations under 

section 113. 

DATES: Comment due date: December 

19, 2011. 

ADDRESSES: Interested persons are 

invited to submit comments regarding 

this notice of proposed rulemaking 

according to the instructions below. All 

submissions must refer to the document 

title. The Council encourages the early 

submission of comments. 

Electronic Submission of Comments: 

Interested persons may submit 

comments electronically through the 

Federal eRulemaking Portal at http:// 

www.regulations.gov. Electronic 

submission of comments allows the 

commenter maximum time to prepare 

and submit a comment, ensures timely 

receipt, and enables the Council to make 

them available to the public. Comments 

submitted electronically through the 


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

2See 12 U.S.C. 5311(b). The Board of Governors 

has requested comment on a proposed rule that 

would establish these requirements. See 76 FR 7731 

(February 11, 2011). The Board of Governors’ 

proposed rule would establish a process by which 

a company may request a determination by the 

Board of Governors as to whether a particular 

activity is financial in nature. In addition, the 

proposed rule would provide the Board of 

Governors the authority to determine that a 

company is predominantly engaged in financial 

activities based on all the facts and circumstances. 

http://www.regulations.gov website can 

be viewed by other commenters and 

interested members of the public. 

Commenters should follow the 

instructions provided on that site to 

submit comments electronically. 

Mail: Send comments to Financial 

Stability Oversight Council, Attn: Lance 

Auer, 1500 Pennsylvania Avenue, NW., 

Washington, DC 20220. 

Note: To receive consideration as public 

comments, comments must be submitted 

through the method specified. 

Public Inspection of Public 

Comments: All properly submitted 

comments will be available for 

inspection and downloading at http:// 

www.regulations.gov. 

Additional Instructions: In general 

comments received, including 

attachments and other supporting 

materials, are part of the public record 

and are available to the public. Do not 

submit any information in your 

comment or supporting materials that 

you consider confidential or 

inappropriate for public disclosure. 

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. All 

responses to this notice should be 

submitted via http:// 

www.regulations.gov to ensure 

consideration. 

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, stress at 

other financial firms, and a deep global 

recession with a considerable drop in 

employment, the classic symptoms of 

financial instability. 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 posed to U.S. 

financial stability by these companies, 

the Dodd-Frank Act authorizes the 

Council to determine that certain 

nonbank financial companies will be 

subject to supervision by the Board of 

Governors and prudential standards. 

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’’ in the United States, other 

than bank holding companies and 

certain other types of firms.1 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 (incorporated or 

unincorporated), or similar 

organization. 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. 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.2

The Council issued an advance notice 

of proposed rulemaking (the ‘‘ANPR’’) 

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

which it requested public comment on 

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 ‘‘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 

NPR closed on February 25, 2011. 

In response to comments that the 

Council received on the NPR, the 

Council is issuing a second notice of 

proposed rulemaking (the ‘‘Proposed 

Rule’’) and proposed interpretive 

guidance (the ‘‘Proposed Guidance’’) 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. 

II. Overview of Comments 

The Council received 35 comments in 

response to the NPR, of which 11 were 

from trade associations or advocacy 

groups, 10 were from the insurance 

industry, eight were from entities in the 

asset management industry, two were 

from law firms, two were from 

individuals, one was from a think tank, 

and one was from a specialty finance 

company. (Comment letters are 

available online at: http:// 

www.regulations.gov.) In addition to 

issuing the ANPR and the NPR for 

public comment, staff of Council 

member agencies met with financial 

industry representatives to discuss the 

proposals. Meeting participants 

generally reiterated the views expressed 

in their comment submissions. Many 

commenters responding to the NPR 

referred to comments that they 

previously had submitted in response to 

the ANPR. While this preamble 

describes many of the comments 

submitted in response to the ANPR and 


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3Many commenters stated that the NPR did not 

adequately define each of the 10 statutory 

considerations that the Council must consider when 

determining whether a nonbank financial company 

could pose a threat to the financial stability of the 

United States. Some commenters asserted that they 

were unable to provide substantive input regarding 

the determination framework set forth in the NPR, 

because the Council failed to explain its rationale 

for selecting the six framework categories. Other 

commenters stated that the Council’s NPR failed to 

provide nonbank financial companies any basis on 

which to make informed business decisions in 

anticipation of a potential determination, such as 

decisions related to potential expansion into new 

lines of business, mergers, acquisitions, financial 

investments, and hiring plans, as companies may 

delay or avoid business pursuits in light of the 

uncertainty surrounding the Determination Process. 

Other commenters stated that the lack of clarity in 

the NPR failed to provide nonbank financial 

companies with a basis on which to consider 

actions that could reduce the company’s potential 

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

thereby lessen the need for determination. 

4S. Roy Woodall has been appointed by President 

Obama as the independent insurance expert on the 

Council. Michael McRaith has been appointed as 

the Director of the Federal Insurance Office. 

the NPR, and describes how the 

Proposed Rule and Proposed Guidance 

address certain of those comments, the 

Council expects to provide a more 

complete discussion of the comments 

submitted in response to the Proposed 

Rule and Proposed Guidance after 

considering the comments received 

during the comment period on the 

Proposed Rule and Proposed Guidance. 

The comments addressed various 

aspects of the NPR, but the majority of 

comments addressed one or more of the 

following three broad issues: the 

substantive content of the NPR, the 

scope of the Council’s Constitutional or 

statutory authority, and the Council’s 

compliance with the Administrative 

Procedure Act (the ‘‘APA’’). 

A. Substantive Content of the NPR 

The majority of commenters asserted 

that the NPR lacked the necessary level 

of specificity and detail needed to 

provide meaningful guidance regarding 

the manner in which the Council 

intends to exercise its determination 

authority under section 113 of the 

Dodd-Frank Act.3

Some commenters asserted that the 

Council should include the proposed 

six-category framework in the rule text, 

rather than in the preamble, so as to 

require the Council to apply the 

framework in the Determination 

Process. The majority of commenters 

requested that the Council issue specific 

metrics to measure the six categories, 

and any relative weighting that the 

Council may assign to one or more of 

the six categories, for public comment. 

Other commenters suggested that the 

Council define the terms ‘‘financial 

stability’’ and ‘‘material financial 

distress’’ before establishing any 

specific metrics, as the Council should 

consider such definitions when 

identifying appropriate metrics. 

Many commenters asserted that the 

Council provided an insufficient level of 

detail regarding the Determination 

Process. Specifically, commenters 

suggested that the initial notice of 

consideration should provide a detailed 

explanation of the basis of the Council’s 

consideration of the nonbank financial 

company for a proposed determination, 

including an outline of the specific 

statutory considerations on which the 

Council based its decision. 

Some commenters, the majority of 

whom represented the insurance 

industry, noted that two insurancerelated positions on the Council were 

vacant: (1) An independent insurance 

expert (to be appointed by the 

President) and (2) the Director of the 

Federal Insurance Office (to be 

appointed by the Secretary of the 

Treasury). These commenters requested 

that the Council delay issuing a final 

rule until those Council positions are 

filled.4

Comments on the Six-Factor Framework 

A majority of commenters addressed 

various aspects of the proposed sixcategory framework that the Council set 

forth in the NPR. Several commenters 

praised the six framework categories as 

useful tools to assess a nonbank 

financial company’s potential to pose a 

threat to U.S. financial stability. One 

commenter expressed concern that the 

Council intended to use the six-category 

framework as a proxy for the 10 specific 

statutory considerations that the 

Council is required to consider when 

determining whether a nonbank 

financial company could pose a threat 

to U.S. financial stability. 

Commenters also asked for 

clarification regarding the manner in 

which the Council intends to assess a 

nonbank financial company within each 

category and provided suggestions 

regarding the manner in which the 

Council should do so. Some of these 

comments are described below. 

Interconnectedness 

Many commenters expressed the view 

that interconnectedness with the 

broader financial system is the most 

important indicator of a nonbank 

financial company’s potential to pose a 

threat to U.S. financial stability. Some 

commenters suggested that the Council 

should assess whether failure of a 

nonbank financial company would 

threaten the financial condition and 

competitive position of other significant 

financial companies when evaluating a 

nonbank financial company under this 

category. Commenters from the asset 

management industry and the insurance 

industry provided comments on how 

interconnectedness should be measured 

within those industries. 

Substitutability 

Many commenters stated that the 

substitutability of a nonbank financial 

company’s goods or services that are 

important to the overall financial system 

is an important factor that the Council 

should consider in the Determination 

Process. Commenters from the asset 

management and insurance industries 

noted that there is little concentration in 

the asset management and insurance 

industries. 

Size 

Commenters generally noted that size 

is an important factor that the Council 

should consider in the Determination 

Process, but that size alone should not 

provide a sufficient basis on which to 

make a determination with respect to a 

nonbank financial company, absent 

other considerations, such as the 

nonbank financial company’s 

interconnectedness or contagion risk. 

Many commenters expressed concern 

that the Council had not sufficiently 

disclosed how it would measure size 

across different industries. 

Leverage 

Some commenters asserted that 

leverage is an important factor that the 

Council should consider in the 

Determination Process, while others 

suggested that different considerations, 

such as reliance on debt financing, 

would provide a more meaningful 

assessment of the potential of a nonbank 

financial company to pose a threat to 

U.S. financial stability. In addition, 

commenters asked that the Council 

clarify the manner in which it intends 

to calculate a nonbank financial 

company’s leverage. 

Liquidity Risk and Maturity Mismatch 

Commenters generally agreed that 

liquidity risk and maturity mismatch are 

important criteria for assessing the 

likelihood that material financial 

distress at a nonbank financial company 

could pose a threat to U.S. financial 

stability, but certain commenters asked 

the Council to clarify the manner in 

which it intends to measure this 

category. Commenters from the asset 

management industry expressed the 

view that firms within the asset 

management industry are not vulnerable 

to significant liquidity risk or maturity 

mismatches. Commenters from the 

insurance industry noted that the 


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5Available at http://www.gpo.gov/fdsys/pkg/FR2011-01-21/pdf/2011-1385.pdf. 

6See 12 U.S.C. 5330(a). 

7See 12 U.S.C. 5463(a)(1). 

insurance industry has had very little 

liquidity risk traditionally. 

Existing Regulatory Scrutiny 

Many commenters stated that an 

assessment of existing regulatory 

scrutiny is an important consideration 

for purposes of determining whether a 

nonbank financial company could pose 

a threat to U.S. financial stability. Some 

commenters suggested that the Council 

consider not only the degree to which 

regulatory requirements are already 

applicable to a particular nonbank 

financial company, but also any new 

regulatory requirements to which the 

nonbank financial company will 

become subject pursuant to new 

requirements imposed by the DoddFrank Act. 

B. The Council’s Authority 

Some commenters asserted that the 

Council does not have the authority to 

issue rules and regulations setting forth 

the process and standards it will follow 

in fulfilling the Council’s statutory 

functions related to nonbank financial 

company determinations under section 

113 of the Dodd-Frank Act. In 

particular, commenters noted that while 

the Dodd-Frank Act authorizes the 

Council to issue such rules as may be 

necessary for the conduct of the 

business of the Council, the Dodd-Frank 

Act does not specifically authorize the 

Council to issue rules or regulations 

regarding matters related to 

determinations regarding nonbank 

financial companies. 

C. Compliance With the APA 

Commenters stated that the rule is too 

vague to satisfy the ‘‘notice and 

comment’’ requirements under the APA, 

the requirement in Presidential 

Executive Order 13563, ‘‘Improving 

Regulation and Regulatory Review’’ 5

that the rule contain clear, specific 

regulatory criteria and a cost/benefit 

analysis, or the due process 

requirements of the United States 

Constitution. 

III. Overview of the Proposed Rule and 

the Proposed Guidance 

In developing the Proposed Rule, the 

Council has carefully considered the 

comments received on the ANPR and 

the NPR, as well as the language and 

legislative history of the Dodd-Frank 

Act. After this review, the Council has 

determined to propose a rule that has 

been modified to provide additional 

details about the processes and 

procedures through which the Council 

may make a determination under 

section 113 of the Dodd-Frank Act, and 

the manner in which a nonbank 

financial company may respond to and 

contest a proposed determination. 

In addition, the Council is issuing, 

with a request for comment, as an 

appendix to the Proposed Rule, the 

Proposed Guidance. Among other 

aspects of the Proposed Guidance, the 

Council invites interested parties to 

comment on— 

• Key terms and concepts related to 

the Council’s determination authority, 

including ‘‘material financial distress’’ 

and ‘‘threat to financial stability’’; 

• The six-category framework that the 

Council intends to use to determine 

whether a nonbank financial company 

could pose a threat to the financial 

stability of the United States, including 

examples of quantitative metrics for 

assessing each category; 

• The six uniform quantitative 

thresholds that the Council intends to 

use to identify those nonbank financial 

companies that will be subject to further 

evaluation by the Council; 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. 

The Council’s ultimate 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 Proposed Rule and Proposed 

Guidance, as well as the Council’s 

responses to the comments received, are 

discussed in greater detail below. 

As noted above under ‘‘Overview of 

Comments,’’ the Council received 

comments that addressed virtually all 

aspects of the Council’s authority to 

make a determination with respect to 

nonbank financial companies under 

section 113 of the Dodd-Frank Act. The 

Council is committed to fostering 

transparency with respect to the 

Determination Process, and the 

Proposed Rule and Proposed Guidance 

are intended to address such concerns 

by providing 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 the 

uncertainty to which many commenters 

referred regarding the Determination 

Process, and (ii) the metrics 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 using the 

six-category framework. 

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 

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.6 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.7 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 standards 

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. 

Commenters are encouraged to 

provide comment on the Proposed Rule 

and Proposed Guidance. The Council 

will consider comments received on the 

Proposed Rule and Proposed Guidance 

as the Council continues to develop the 


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8This list reflects the statutory considerations 

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

nonbank financial company. The Council is 

required to consider similar factors in making a 

determination with respect to a foreign nonbank 

financial company. 

approach that the Council intends to 

take in the Determination Process. 

A. Statutory Considerations for 

Determinations 

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: 8

(A) The extent of the leverage of the 

company; 

(B) The extent and nature of the off– 

balance-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 each of the 10 statutory 

considerations when determining 

whether one of the statutory standards 

for determination has been met. The 

Council included each of the statutory 

considerations in the rule text in the 

NPR and has retained this rule text in 

the Proposed Rule. The Council has 

provided additional detail in the 

Proposed Guidance regarding the 

manner in which the Council intends to 

assess nonbank financial companies 

under the First and Second 

Determination Standards. The Council 

has set forth proposed definitions of the 

terms ‘‘material financial distress,’’ 

which is relevant to the First 

Determination Standard, and ‘‘threat to 

U.S. financial stability,’’ which is 

relevant to both determination 

standards. The Proposed Guidance also 

describes the 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. 

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 Proposed 

Rule retains the process for making antievasion determinations that was set 

forth in the NPR. The Council may make 

such a determination either on its own 

initiative or at the request of the Board 

of Governors. 

B. Process for Identifying Nonbank 

Financial Companies for Further 

Evaluation 

In response to comments requesting 

more detail regarding the Determination 

Process, the Proposed Guidance 

provides a detailed description of the 

manner in which the Council intends to 

conduct the Determination Process. For 

example, the Proposed Guidance 

provides a description of the manner in 

which the Council intends to identify 

nonbank financial companies for further 

evaluation. The Council intends to 

evaluate a broad group of nonbank 

financial companies by applying 

uniform quantitative thresholds 

representing the framework categories 

that are more readily quantified, namely 

size, interconnectedness, leverage, and 

liquidity risk and maturity mismatch. 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 this set of 

thresholds will help a nonbank financial 

company predict whether such 

company will likely be subject to 

additional review by the Council. 

In addition to a discussion of the 

analytic framework, the Proposed 

Guidance describes the manner in 

which the Council intends to analyze 

the companies included in each 

subsequent stage in the Determination 

Process to determine whether any 

nonbank financial company initially 

identified could pose a threat to U.S. 

financial stability. 

The Council expects that the detailed 

description of the Determination 

Process contained in the Proposed 

Guidance, including the discussion of 

the analytic framework, will mitigate 

many of the potential negative effects 

that could result from the perceived 

uncertainty regarding the Determination 

Process. However, as discussed in the 

Proposed Guidance, the Council does 

not believe that a determination 

decision can be reduced to a formula. 

Each determination will be made on a 

firm-specific basis, taking into account 

qualitative, as well as quantitative, 

information that the Council deems 

relevant to a particular nonbank 

financial company. 

C. Analytic Framework for 

Determinations 

As set forth in the NPR, the Council 

proposes to use a six-category 

framework that is designed to 

incorporate each of the 10 statutory 

considerations for evaluating whether a 

nonbank financial company meets one 

of the two Determination Standards. 

The Council has incorporated the 

statutory considerations into the 

following six factors: (1) Size, (2) 

interconnectedness, (3) substitutability, 

(4) leverage, (5) liquidity risk and 

maturity mismatch, and (6) existing 

regulatory scrutiny. Three of the six 

categories seek to assess the potential 

impact of a nonbank financial 

company’s financial distress on the 

broader economy: size, substitutability 

and interconnectedness. 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 of the 

nonbank financial company. The NPR 

contained a table that illustrated the 

relationship between the 10 statutory 

considerations and the six framework 

categories. The table is also included in 

the Proposed Guidance. In response to 


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requests by commenters, the Proposed 

Guidance provides further detail 

regarding the Council’s rationale for 

selecting the six framework categories 

and provides additional clarity 

regarding the manner in which the sixcategory analytic framework 

incorporates each of the statutory 

considerations. As requested by 

commenters, the Proposed Guidance 

also sets forth examples of metrics that 

the Council intends to use when 

evaluating a nonbank financial company 

in each of the six categories. These 

metrics include several metrics 

proposed by commenters. 

D. Additional Detail Regarding the 

Determination Process 

In response to the public comments 

requesting more transparency and 

clarity regarding the criteria that will 

inform the Determination Process, the 

Council has developed a three-stage 

process the Council expects to apply for 

determinations in non-emergency 

situations. Each stage of the 

Determination Process would involve an 

analysis based on an increasing amount 

of information to determine whether a 

nonbank financial company meets 

either Determination Standard. The 

Proposed Guidance provides a detailed 

discussion of the proposed three-stage 

review process. 

The first stage of the process (‘‘Stage 

1’’) is designed to narrow the universe 

of nonbank financial companies to a 

smaller set of nonbank financial 

companies using quantitative thresholds 

that are broadly applicable across the 

financial sector. Stage 1 is not intended 

to indicate 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 those 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 of the 

potential for the identified nonbank 

financial companies 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 industry- and firmspecific metrics beyond those analyzed 

in Stage 1, and information obtained 

from the company voluntarily. 

Based on the analysis conducted 

during Stage 2, the Council intends to 

contact those nonbank financial 

companies that the Council believes 

merit further review in the third stage 

(‘‘Stage 3’’). Stage 3 will build on the 

Stage 2 analysis using quantitative and 

qualitative information collected 

directly from the nonbank financial 

company by the Office of Financial 

Research (the ‘‘OFR’’) or the appropriate 

regulatory agency in addition to the 

otherwise available 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 

each stage of review. 

The Council considered several 

alternative quantitative approaches in 

developing a method to identify a subset 

of companies for additional review 

during Stage 1 and concluded that the 

thresholds-based approach set forth in 

the Proposed Guidance is the most 

appropriate method to identify this 

subset. In the Council’s view, the 

thresholds-based approach provides the 

maximum possible transparency to the 

market, thereby reducing the likelihood 

that uncertainty about the 

Determination Process could negatively 

affect financial markets. Furthermore, 

the Council selected the particular Stage 

1 quantitative thresholds due to their 

applicability to nonbank financial 

companies that operate in different 

types of financial markets and 

industries, and because the data 

underlying these thresholds are 

generally available from existing public 

and regulatory sources. Thus, nonbank 

financial companies should be able to 

reproduce the Council’s initial 

assessments of nonbank financial 

companies. 

The Council recognizes that the 

quantitative thresholds it has identified 

for application during Stage 1 may not 

provide an appropriate means to 

identify a subset of nonbank financial 

companies for further review in all cases 

across all financial industries and firms. 

While the Council will apply the Stage 

1 thresholds to all types of nonbank 

financial companies, including financial 

guarantors, asset management 

companies, private equity firms, and 

hedge funds, these 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 

is generally available about these 

companies than about certain other 

types of nonbank financial companies. 

Beginning in 2012, advisers to 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 or 

the Commodity Futures Trading 

Commission, 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 will analyze the 

extent to which there are potential 

threats to U.S. financial stability arising 

from asset management companies. This 

analysis will consider 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 issue additional guidance 

for public comment regarding potential 

additional metrics and thresholds 

relevant to asset manager 

determinations. 

Generally, as reporting requirements 

evolve and new data 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’s analysis will be 

informed by credit exposure data 

proposed to be collected under section 

165 of the Dodd-Frank Act by the 

Federal Deposit Insurance Corporation 

and the Board of Governors. Similarly, 

pursuant to reporting and disclosure 

requirements being implemented under 

the Dodd-Frank Act, Council members 

will gain access to additional 

information through swap data 

repositories. 

The Council recognizes that the 

proposed 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 

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. 

Once the final rules establishing the 

MSP and MSBSP definitions have been 

adopted, the rules regarding reporting of 

data on swaps and security-based swaps 

come into effect, and data have been 

collected pursuant to those rules, the 


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9However, the Council does not believe that the 

concurrence of the primary financial regulatory 

agency is required prior to the Council’s subjecting 

a nonbank financial company to a proposed 

determination. 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. 

Council intends to establish a new 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 firms will be subject 

to further examination in Stage 2. 

In all instances, the Council reserves 

the right, in its discretion, to subject any 

nonbank financial company, 

irrespective of whether such company 

was identified in Stage 1, 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. 

After a subset of nonbank financial 

companies has been identified in Stage 

1, 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 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. 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 Stage 2 based on a wide range of 

quantitative and qualitative industryand company-specific factors. This 

analysis will use the six-category 

analytic framework described in section 

C above. In addition, the Stage 2 

evaluation will include a review, based 

on available data, of whether the 

resolution of a nonbank financial 

company could pose a threat to U.S. 

financial stability. 

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 further evaluation during 

Stage 3. As discussed in greater detail in 

the Proposed Guidance during the Stage 

3 review, the Council intends to 

conduct an in-depth analysis of 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 previously obtained 

by the Council during prior stages of 

review. The Council believes that in this 

stage of the evaluation, the Council 

likely will consider qualitative factors, 

including considerations that could 

mitigate or aggravate the potential of a 

nonbank financial company to pose a 

threat to U.S. financial stability, such as 

the nonbank financial company’s 

resolvability, the opacity of the nonbank 

financial company’s operations, its 

complexity, and the extent to which the 

nonbank financial company is subject to 

existing regulatory scrutiny and the 

nature of such scrutiny. 

Based on the analysis performed in 

Stages 2 and 3, the Council may 

consider whether to determine, by vote, 

to subject any of the nonbank financial 

companies 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.9

Following a proposed determination, 

the Council intends to issue a written 

notice of the proposed determination to 

the nonbank financial company that 

would 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 section 1310.21(c) of the 

Proposed Rule. The Council has 

provided additional details regarding 

the hearing process in the Proposed 

Rule and in the Proposed Guidance. 

E. Section-by-Section Analysis 

I. Subpart A General 

A. Section 1310.1 Authority and 

purpose 

This section sets forth the authority 

for and purpose of the Proposed Rule. 

B. Section 1310.2 Definitions 

This section defines the terms 

relevant to the Proposed Rule. It retains 

the majority of the definitions proposed 

in the NPR, with some technical 

modifications. For instance, the 

definition of ‘‘predominantly engaged in 

financial activities’’ has been 

incorporated into the definitions of 

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

‘‘foreign nonbank financial company’’ to 

clarify that such definition is relevant 

for purposes of determining whether an 

entity meets the definition of U.S. 

nonbank financial company or foreign 

nonbank financial company. It also 

introduces definitions not set forth in 

the NPR, including definitions of 

‘‘Federal Insurance Office,’’ ‘‘hearing 

date,’’ ‘‘nonbank financial company,’’ 

and ‘‘Office of Financial Research.’’ 

II. Subpart B Determinations 

A. Section 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. Certain provisions included in the 

corresponding section in the NPR have 

been moved to other sections of the 

Proposed Rule for organizational 

purposes. 

B. Section 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. 

C. Section 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. 


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This section is intended to clarify the 

application of subpart C as previously 

set forth in the NPR. 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 would 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(d)(1) and (2) and 

154(b) of the Dodd-Frank Act, 

respectively. 

The provision in the corresponding 

section in the NPR relating to the 

establishment of an intermediate 

holding company was deleted because it 

related to authority of the Board of 

Governors rather than of the Council. 

III. Subpart C Information Collection; 

Proposed and Final Determinations; 

Evidentiary Hearings 

A. Section 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, and paragraph (b) 

sets forth the Council’s ability to collect 

information from nonbank financial 

companies. These two paragraphs 

implement the provisions of section 

112(d) of the Dodd-Frank Act relating to 

the Council’s authority to obtain 

information and collect financial data. 

Paragraph (c) provides that the Council 

will consult with a nonbank financial 

company’s primary financial regulatory 

agency in a timely manner, in 

accordance with section 113(g) of the 

Dodd-Frank Act. 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. The NPR included 

provisions similar to paragraphs (c) and 

(d) of the Proposed Rule that were 

located elsewhere in the NPR. Paragraph 

(e), which was not included in the NPR, 

implements the confidentiality 

requirements provided in section 

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

B. Section 1310.21 Notice and 

Opportunity for an Evidentiary Hearing; 

Proposed and Final Determinations 

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 

determination, including materials 

concerning whether the nonbank 

financial company meets the standards 

for a determination. This broadens the 

scope of materials that may be provided 

to contest a determination from the 

version proposed in the NPR. 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 provides 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. 

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 was 

added to the Proposed Rule 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. 

C. Section 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 Proposed 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 

making a determination under this 

section. These consultations will be 

conducted in such time and manner as 

the Council may deem appropriate. 

D. Section 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. 

The section in the NPR relating to 

judicial review of the Council’s final 

determinations pursuant to section 

113(h) of the Dodd-Frank Act was 

removed because it did not serve to 


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64272 Federal Register / Vol. 76, No. 201 / Tuesday, October 18, 2011 / Proposed Rules 

implement the Council’s authority to 

make determinations. 

IV. Regulatory Flexibility Act 

It is hereby certified that this 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 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 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. 

V. Paperwork Reduction Act 

The collection of information 

contained in this notice of proposed 

rulemaking has been submitted to the 

Office of Management and Budget in 

accordance with the Paperwork 

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

3507(d)). Comments on the collection of 

information should be sent to the Office 

of Management and Budget, Attn: Desk 

Officer for the Financial Stability 

Oversight Council, Office of Information 

and Regulatory Affairs, Washington, DC 

20503, with copies to George A. Sacco, 

Department of the Treasury, 

Washington, DC 20220. Comments on 

the collection of information must be 

received by December 19, 2011. 

Comments are specifically requested 

concerning: 

Whether the proposed collection of 

information is necessary for the proper 

performance of the functions of the 

Council, including whether the 

information will have practical utility; 

The accuracy of the estimated burden 

associated with the proposed collection 

of information; 

How the quality, utility, and clarity of 

the information to be collected may be 

enhanced; 

How the burden of complying with 

the proposed collection of information 

may be minimized, including through 

the application of automated collection 

techniques or other forms of information 

technology; and 

Estimates of capital or start-up costs 

and costs of operation, maintenance, 

and purchase of services to provide 

information. 

The collection of information in these 

proposed regulations are found in 

§ 1310.20 and § 1310.21. 

Estimated total annual reporting 

burden: 1,000 hours. 

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. 

VI. Executive Orders 12866 and 13563 

Executive Orders 12866 and 13563 

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. 

List of Subjects in 12 CFR Part 1310 

Nonbank financial companies. 

For the reasons set forth in the 

preamble, the Financial Stability 

Oversight Council proposes to add a 

new part 1310 to chapter XIII of Title 12 

of the Code of Federal Regulations, to 

read as follows: 

PART 1310—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 Notice and opportunity for an 

evidentiary hearing; proposed and final 

determinations. 

1310.22 Emergency exception to § 1310.21. 

1310.23 Council reevaluation and 

rescission of determinations. 

Appendix 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 Financial Stability Oversight 

Council (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 DoddVerDate Mar<15>2010 16:08 Oct 17, 2011 Jkt 226001 PO 00000 Frm 00023 Fmt 4702 Sfmt 4702 E:\FR\FM\18OCP1.SGM 18OCP1

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Frank Act (12 U.S.C. 5311(a)(6)) and 

pursuant to the 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; 

(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. 

7210 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 


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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 

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 the 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 


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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 

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 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. 

(c) Consultation. The Council shall 

consult with the primary financial 

regulatory agency, if any, for each 

nonbank financial company that is 

being considered for supervision by the 

Board of Governors under § 1310.10(a) 

and with the primary financial 

regulatory agency, if any, of any 

subsidiary of such nonbank financial 

company, 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. 


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(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 

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, shall apply to any data or 

information submitted under this part. 

§ 1310.21 Notice and opportunity for an 

evidentiary hearing; proposed and final 

determinations. 

(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, 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 written or oral 

evidentiary hearing before the Council 

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 an 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) Make a final determination under 

§ 1310.10(a); 

(2) Notify the nonbank financial 

company, in writing, of the final 

determination of the Council, which 

notice shall contain a statement of the 

basis for the decision of the Council; 

and 

(3) 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) Make a final determination under 

§ 1310.10(a); 

(2) Notify the nonbank financial 

company, in writing, of the final 

determination of the Council, which 

notice shall contain a statement of the 

basis for the decision of the Council; 

and 

(3) 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 time and manner as 

the Council may deem appropriate. 

(2) In making a determination under 

paragraph (a) of this section with 


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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 written or oral 

evidentiary hearing before the Council 

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, to 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) 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 

(2) 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) 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. 

APPENDIX 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’’) 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 nonbank 

financial company’s activities 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. 

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 a list 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 on 

quantitative thresholds using publicly 

available data in the first stage, nonbank 

financial companies should be able to assess 

whether they are likely to 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 

Proposed 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’’). 

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. 

An impairment of financial intermediation 

and financial market functioning can occur 


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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, loans and bonds outstanding, and 

leverage ratio. 

• Asset liquidation. A nonbank financial 

company holds assets that, if liquidated 

quickly, would significantly disrupt trading 

or funding in key markets or cause significant 

losses or funding problems for other firms 

with similar holdings due to falling asset 

prices. 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 short-term 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, in 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 nonbank 

financial company’s activities 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 set forth in the 

statute. The discussion below outlines the 

analytic framework that 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, lack of substitutes, 

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 a 

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 


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10The corresponding statutory considerations for 

a foreign nonbank financial company would be 

considered under the relevant categories indicated 

in the table. 

considerations relevant to a U.S. nonbank 

financial company for illustrative purposes.10

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; lack of substitutes. 

(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.

Lack of substitutes. 

(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; lack of substitutes. 

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

and mix of the activities of the company.

Size; interconnectedness; lack of substitutes. 

(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 

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 is the reference 

entity. 

• Outstanding loans borrowed and bonds 

issued, 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 


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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 the applicable financial 

reporting standards. 

• 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 

is typically measured by the ratio of debt 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 net assets under management, 

which is intended to show how much offbalance 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 

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. 

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, the Council may 

consider whether a nonbank financial 

company is subject to consolidated 

supervision. 

For example, metrics that may be used to 

assess existing regulatory scrutiny include: 

• Existence of consolidated supervision, to 

determine whether non-regulated entities 

and groups within a nonbank financial 

company are supervised on a group-wide 

basis. 


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Federal Register / Vol. 76, No. 201 / Tuesday, October 18, 2011 / Proposed Rules 64281 

11See 12 U.S.C. 5322(d)(3). 

12For purposes of applying these six thresholds 

to investment funds managed by a nonbank 

financial company, the Council may consider the 

funds as a single entity if their investments are 

identical or highly similar. 

• For investment funds, whether the fund 

or manager is registered with the Securities 

and Exchange Commission, the Commodity 

Futures Trading Commission, or a bank or 

insurance regulator. 

• For insurance companies, an assessment 

of the number of primary financial regulatory 

agencies and the number of ‘‘lead state’’ 

regulators. 

• 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. 

• Current regulatory bodies’ ability to 

impose detailed and timely regulatory 

reporting obligations, capital or liquidity 

requirements, enforcement actions, and 

resolutions. 

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. 

During Stage 2, the Council intends to fulfill 

its statutory obligation to rely whenever 

possible on information available through the 

Office of Financial Research (the ‘‘OFR’’) or 

primary financial regulatory agencies before 

requiring the submission of reports from any 

nonbank financial company.11

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 section 

1310.21(c) of the proposed rule. 

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 further 

assessed during Stage 2. During the Stage 1 

process, the Council will evaluate nonbank 

financial companies using 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.12 The thresholds are: 

• Total Consolidated Assets. The Council 

intends to apply a size threshold of $50 

billion in global total consolidated assets for 

U.S. nonbank financial companies or $50 

billion in U.S. total consolidated assets for 

foreign nonbank financial companies. 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. In accordance with 

Accounting Standards Codification 815, 

derivative liabilities equals the fair value of 

any derivatives contracts in a negative 

position after taking into account the effects 

of master netting agreements and cash 

collateral held with the same counterparty on 

a net basis, if elected. This threshold serves 

as a proxy for interconnectedness, as a 

nonbank financial company that has a greater 

level of derivatives liabilities would have 

higher counterparty exposure throughout the 

financial system. 

• Loans and Bonds Outstanding. The 

Council intends to apply a threshold of $20 

billion of outstanding loans borrowed and 

bonds issued. This threshold serves as a 

proxy for interconnectedness, as nonbank 

financial companies with a large amount of 

loans and bonds outstanding are generally 

more interconnected with the broader 

financial system, in part because financial 

institutions are the largest source of loans 

and hold a large proportion of bonds 

outstanding. An analysis of the distribution 

of total loans and bonds 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 recent financial crisis, including 

Bear Stearns, Countrywide, and Lehman 

Brothers. 

• Leverage Ratio. The Council intends to 

apply a threshold leverage ratio of total 

consolidated assets (excluding separate 


srobinson on DSK4SPTVN1PROD with PROPOSALS
64282 Federal Register / Vol. 76, No. 201 / Tuesday, October 18, 2011 / Proposed Rules 

13See section 1310.21(a) of the proposed rule. 

14Under 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. 

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 recent 

financial crisis, including Bear Stearns, 

Countrywide, IndyMac Bancorp, and Lehman 

Brothers. 

• Short-Term Debt Ratio. The Council 

intends to apply a threshold ratio of debt 

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 recent financial crisis, including Bear 

Stearns and Lehman Brothers. 

In addition, because the uniform 

quantitative thresholds may not capture all of 

the potential ways in which a nonbank 

financial company could pose a threat to 

financial stability, the Council may, in 

limited cases, initially evaluate nonbank 

financial companies in Stage 1 based on 

other firm-specific qualitative or quantitative 

factors, such as substitutability and existing 

regulatory scrutiny. 

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 obtained from 

the company voluntarily. 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 company’s 

activities. The transmission channels 

discussed above, and other appropriate 

factors, will be used to evaluate a nonbank 

financial company’s potential to pose a threat 

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.13 This information will be 

collected by the OFR or the appropriate 

regulatory agency.14 Before requiring the 

submission of reports from any nonbank 

financial company that is regulated by a 

Council 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. The Council and its 

member agencies will maintain the 

confidentiality of such information to the 

fullest extent of 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 nonbank 

financial company’s resolvability, the opacity 

of its 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. 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 a 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, 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 

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 


srobinson on DSK4SPTVN1PROD with PROPOSALS
Federal Register / Vol. 76, No. 201 / Tuesday, October 18, 2011 / Proposed Rules 64283 

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 

Proposed Determination in the future at the 

Council’s discretion. 

A nonbank financial company that is 

subject to a Proposed Determination may 

request a hearing to contest the Proposed 

Determination in accordance with section 

113(e) of the Dodd-Frank Act. If the nonbank 

financial company requests a hearing in 

accordance with the procedures set forth in 

section 1310.21(c) of the proposed rule, 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. In 

accordance with section 113(h) of the DoddFrank 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: October 11, 2011. 

Alastair Fitzpayne, 

Executive Secretary, Department of the 

Treasury. 

[FR Doc. 2011–26783 Filed 10–17–11; 8:45 am] 

BILLING CODE 4810–25–P–P 

DEPARTMENT OF TRANSPORTATION 

Federal Aviation Administration 

14 CFR Part 39 

[Docket No. FAA–2007–28059; Directorate 

Identifier 2007–NE–13–AD] 

RIN 2120–AA64 

Airworthiness Directives; Rolls-Royce 

plc (RR) Turbofan Engines 

AGENCY: Federal Aviation 

Administration (FAA), DOT. 

ACTION: Notice of proposed rulemaking 

(NPRM). 

SUMMARY: We propose to supersede an 

existing airworthiness directive (AD) 

that applies to all RR RB211–Trent 553– 

61, 553A2–61, 556–61, 556A2–61, 

556B–61, 556B2–61, 560–61, 560A2–61, 

768–60, 772–60, 772B–60, 875–17, 877– 

17, 884–17, 884B–17, 892–17, 892B–17, 

and 895–17 turbofan engines. The 

existing AD currently requires 

inspecting the intermediate-pressure 

(IP) compressor rotor shaft rear balance 

land for cracks. Since we issued that 

AD, we received reports of one RB211– 

Trent 700 and two additional RB211– 

Trent 800 IP compressor rotor shafts 

that have been found cracked. This 

proposed AD would continue to require 

initial inspections, add additional 

inspections, and an optional terminating 

action. The cracking identified above 

could lead to IP compressor rotor shaft 

failure, uncontained engine failure, and 

damage to the airplane. We are 

proposing this AD to correct the unsafe 

condition on these products. 

DATES: We must receive comments on 

this proposed AD by December 2, 2011. 

ADDRESSES: You may send comments, 

using the procedures found in 14 CFR 

11.43 and 11.45, by any of the following 

methods: 

• Federal eRulemaking Portal: Go to 

http://www.regulations.gov. Follow the 

instructions for submitting comments. 

• Fax: 202–493–2251. 

• Mail: U.S. Department of 

Transportation, Docket Operations, 

M–30, West Building Ground Floor, 

Room W12–140, 1200 New Jersey 

Avenue, SE., Washington, DC 20590. 

• Hand Delivery: Deliver to Mail 

address above between 9 a.m. and 

5 p.m., Monday through Friday, except 

Federal holidays. 

For service information identified in 

this AD, contact Rolls-Royce plc, 

Corporate Communications, P.O. Box 

31, Derby, England, DE248BJ; phone: 

011–44–1332–242424; fax: 011–44– 

1332–245418 or e-mail from http:// 

www.rolls-royce.com/contact/ 

civil_team.jsp. You may review copies 

of the referenced service information at 

the FAA, Engine & Propeller Directorate, 

12 New England Executive Park, 

Burlington, MA 01803. For information 

on the availability of this material at the 

FAA, call 781–238–7125. 

Examining the AD Docket 

You may examine the AD docket on 

the Internet at http:// 

www.regulations.gov; or in person at the 

Docket Management Facility between 

9 a.m. and 5 p.m., Monday through 

Friday, except Federal holidays. The AD 

docket contains this proposed AD, the 

regulatory evaluation, any comments 

received, and other information. The 

street address for the Docket Office 

(phone: 800–647–5527) is in the 

ADDRESSES section. Comments will be 

available in the AD docket shortly after 

receipt. 

FOR FURTHER INFORMATION CONTACT: 

Alan Strom, Aerospace Engineer, Engine 

Certification Office, FAA, 12 New 

England Executive Park, Burlington, 

MA; phone: 781–238–7143; fax: 781– 

238–7199; e-mail: alan.strom@faa.gov. 

SUPPLEMENTARY INFORMATION: 

Comments Invited 

We invite you to send any written 

relevant data, views, or arguments about 

this proposed AD. Send your comments 

to an address listed under the 

ADDRESSES section. Include ‘‘Docket No. 

FAA–2007–28059; Directorate Identifier 

2007–NE–13–AD’’ at the beginning of 

your comments. We specifically invite 

comments on the overall regulatory, 

economic, environmental, and energy 

aspects of this proposed AD. We will 

consider all comments received by the 

closing date and may amend this 

proposed AD because of those 

comments. 

We will post all comments we 

receive, without change, to http:// 

www.regulations.gov, including any 

personal information you provide. We 

will also post a report summarizing each 

substantive verbal contact we receive 

about this proposed AD. 

Discussion 

On August 25, 2008, we issued AD 

2008–18–08, Amendment 39–15665 (73 

FR 52201, September 9, 2008), for all 

Rolls-Royce plc RB211–Trent 553–61, 

553A2–61, 556–61, 556A2–61, 556B–61, 

556B2–61, 560–61, 560A2–61, 768–60, 

772–60, 772B–60, 875–17, 877–17, 884– 

17, 884B–17, 892–17, 892B–17, and 

895–17 turbofan engines. That AD 

requires a onetime eddy current 

inspection (ECI) of the rear balance land 

of the IP compressor rotor shaft for 

cracks. That AD resulted from reports of 


srobinson on DSK4SPTVN1PROD with PROPOSALS