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Financial Stability Oversight Council

Staff Guidance

Methodologies Relating to Stage 1 Thresholds

June 8, 2015

Stage 1 Overview

Section 113 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the DoddFrank Act) authorizes the Financial Stability Oversight Council (the Council) to determine that a 

nonbank financial company shall be supervised by the Board of Governors of the Federal 

Reserve System and be subject to enhanced prudential standards if the Council determines that 

material financial distress at the company, or the nature, scope, size, scale, concentration, 

interconnectedness, or mix of the activities of the company, could pose a threat to the financial 

stability of the United States.1 The Council has issued a rule and interpretive guidance (Rule and 

Guidance) regarding its determinations authority.2 The Rule and Guidance provide a detailed 

description of the analysis that the Council intends to conduct, and the processes and procedures 

that the Council intends to follow, during its review of nonbank financial companies. The 

Council has also adopted supplemental procedures related to nonbank financial company 

determinations that supplement the Rule and Guidance (Supplemental Procedures).

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In the Rule and Guidance, the Council created a three-stage process for identifying and analyzing 

companies for a potential determination. Each stage of the process involves an analysis based on 

an increasing amount of information to determine whether a company meets one of the statutory 

standards for a determination. In the first stage of the process (Stage 1), the Council applies six 

quantitative thresholds to a broad group of nonbank financial companies to identify a set of 

companies that merit further evaluation. The six thresholds are described below. A nonbank 

financial company identified for further evaluation in Stage 1 may be subject to active review in

Stage 2. The Council will notify a company if the Council commences an active review of the 

company in Stage 2. Subsequent steps of the process are described in the Rule and Guidance and 

Supplemental Procedures.

Stage 1 provides a mechanism for the Council, nonbank financial companies, market 

participants, and other members of the public to assess whether a nonbank financial company 

may be subject to further evaluation by the Council. In Stage 1, the Council relies solely on 

information available through existing public and regulatory sources. A fundamental purpose of 

Stage 1 is to narrow the universe of nonbank financial companies that may be subject to active 

review in Stage 2. The Stage 1 thresholds are designed to be uniform, transparent, and readily 

calculable by the Council, nonbank financial companies, market participants, and other members 

of the public. 

 

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12 U.S.C. § 5323.

2 Authority to Require Supervision and Regulation of Certain Nonbank Financial Companies, 12 C.F.R. part 1310.

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Supplemental Procedures Relating to Nonbank Financial Company Determinations (February 4, 2015), available at 

fsoc.gov.
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The Council applies the Stage 1 thresholds to all types of nonbank financial companies, to the 

extent that the relevant data are available. The Council retains the discretion to consider in Stage 

2 a nonbank financial company not identified by the Stage 1 thresholds if further analysis is 

warranted to determine if the company could pose a threat to U.S. financial stability. 

As announced in the Council’s Supplemental Procedures, below are additional details explaining 

how the Stage 1 thresholds are calculated. 4 

Methodologies for Calculating Stage 1 Thresholds

1. Components of thresholds. The six Stage 1 thresholds are described below. A nonbank 

financial company that meets both the total consolidated assets threshold and any one of the 

other thresholds is in Stage 2 and may become subject to active review by the Council.

 $50 billion in total consolidated assets

o For a U.S. nonbank financial company, the global assets of the company and its 

consolidated subsidiaries are included in the calculation of this threshold. For a 

foreign nonbank financial company, only the U.S. assets of the company and its 

consolidated subsidiaries are included.

 $30 billion in gross notional credit default swaps (CDS) outstanding for which a nonbank 

financial company is the reference entity

o Gross notional value equals the sum of CDS contracts bought (or equivalently 

sold) for all contracts in the aggregate. This value is calculated on a per-trade 

basis to avoid double-counting that would arise from including both the purchase 

and sale of the same contract.

o If a nonbank financial company has a subsidiary that is the reference entity for 

CDS, the CDS referencing that subsidiary are included in the calculation of this 

threshold with respect to the parent nonbank financial company.

o With respect to a foreign nonbank financial company, only CDS for which the 

company’s U.S. subsidiaries are the reference entities are included in the 

calculation.

o With respect to a U.S. nonbank financial company that is the subsidiary of a 

parent company that is not a nonbank financial company, any CDS for which the 

parent company is the reference entity are not included in the calculation.

o The data used for this threshold are as of the last week of the quarter for which the 

threshold is being calculated.

 $3.5 billion of derivative liabilities

o Derivative liabilities are calculated including embedded derivative liabilities, and 

are net of master netting agreements and cash collateral held with the same 

 

4 The calculation of the Stage 1 thresholds may be adjusted as appropriate in the event of idiosyncratic accounting 

issues or other circumstances in a particular nonbank financial company’s financial reporting.
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counterparty (this netting reduces the calculated derivative liabilities). Derivative 

liabilities are not calculated net of securities collateral.

o For nonbank financial companies that do not disclose these net effects, derivative 

liabilities equal the fair value of derivative contracts in a negative position.

 $20 billion in total debt outstanding

o Total debt outstanding is broadly defined to include, regardless of maturity, loans 

(whether secured or unsecured), bonds, repurchase agreements, commercial 

paper, securities lending arrangements, surplus notes (for insurance companies), 

and other forms of indebtedness.

o For repurchase agreements and securities lending arrangements, the liability 

associated with cash borrowings is considered to be debt. 

o Advances from a Federal Home Loan Bank and capital lease obligations are 

included in total debt.

o Deposit liabilities (to the extent separately disclosed) are not included in total 

debt.

 15 to 1 leverage ratio

o The leverage ratio is calculated as the ratio of total consolidated assets (excluding 

separate account assets) to total equity. 

o Total equity for this calculation includes non-controlling interests in subsidiaries 

and redeemable interests of consolidated funds.

 10 percent short-term debt ratio 

o The short-term debt ratio is calculated as the ratio of total debt outstanding (as 

defined above) with a maturity of less than 12 months to total consolidated assets

(excluding separate account assets).

o Commercial paper, repurchase agreements, and securities lending liabilities are 

included as short-term debt unless their remaining duration as of the measurement 

date is 365 days or more. 

o Deposit liabilities (to the extent separately disclosed) are not included in shortterm debt.

2. Application of accounting standards. The Council generally applies the Stage 1 thresholds 

using generally accepted accounting principles in the United States (GAAP) when such 

information is available. If GAAP information with respect to a nonbank financial company 

is not available, the Council may rely on data reported under state statutory accounting 

principles (SAP), data based on international financial reporting standards, or other such data 

as are available to the Council. As discussed below, when calculating Stage 1 thresholds for 

insurance companies that report financial statements solely under SAP, those financial 

statements are adjusted to improve their comparability with financial statements reported 

under GAAP to promote consistency and uniformity in the application of the Stage 1 

thresholds.
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 When using SAP, the following adjustments are made:

o Under SAP, certain assets that are not included for purposes of calculating 

regulatory capital are reported separately as “non-admitted.” For purposes of 

calculating total consolidated assets, both admitted and non-admitted assets are 

included. In addition, the company’s carrying value of investments in direct U.S. 

insurance subsidiaries is deducted from the calculation of total consolidated assets 

as a consolidating adjustment because the assets of the subsidiaries are separately 

aggregated.

o SAP requires surplus notes to be recorded as a separate component of surplus 

(equity), while GAAP requires surplus notes to be reported as long-term debt. As 

a result, considering surplus notes to be long-term debt provides a figure more 

comparable to GAAP. Therefore, for purposes of calculating total debt 

outstanding, surplus notes are included, and for purposes of calculating short-term 

debt, surplus notes are excluded.

o Short-term debt is not provided in SAP filings; therefore, it is assumed that shortterm debt is equivalent to total SAP debt.

o For purposes of calculating the leverage ratio, total equity is calculated as the sum 

of statutory capital and surplus, non-admitted assets, and asset valuation reserve

and interest maintenance reserve accounts, less surplus notes. In addition, the 

company’s carrying value of investments in direct U.S. insurance subsidiaries is 

deducted from the calculation of total equity as a consolidating adjustment 

because the equity of the subsidiaries is separately aggregated.

3. Data sources; practices when incomplete data are available

 Data sources used for calculating the Stage 1 thresholds include filings with the 

Securities and Exchange Commission, filings with the National Association of Insurance 

Commissioners (NAIC), credit union call reports provided by National Credit Union 

Administration, certain private-sector data vendors, and the Trade Information 

Warehouse, which is operated by a subsidiary of the Depository Trust & Clearing 

Corporation (with respect to CDS data).

 In some cases, consolidated financial statements for a company are not available. In that

circumstance, the data for those subsidiaries for which data are available are aggregated

to calculate the thresholds.

 When data are not reported quarterly, data from the most recent available period are used.

 The NAIC provides the Council with SAP data collected for each insurance group for 

which data are requested in Stage 1.

4. Entities included in calculations

 For U.S. nonbank financial companies, the Stage 1 thresholds are calculated based on the 

global assets, liabilities, and operations of the company and its consolidated subsidiaries. 

For foreign nonbank financial companies, the Stage 1 thresholds are calculated based 
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solely on the U.S. assets, liabilities, and operations of the foreign nonbank financial 

company and its consolidated subsidiaries.

 When evaluating a particular nonbank financial company for a potential determination, 

the Council considers the company and its subsidiaries. If a nonbank financial company 

that is a subsidiary of another nonbank financial company meets the Stage 1 thresholds, 

the Council may evaluate the parent nonbank financial company and all of its 

subsidiaries, even if the parent company or another individual subsidiary does not meet 

the Stage 1 thresholds. This approach enables the Council to consider potential risks 

arising across the consolidated organization, while retaining the ability to make a 

determination regarding either the parent or an individual nonbank financial company 

subsidiary (or neither), depending on which entity the Council determines could pose a 

threat to financial stability.

5. Frequency of calculations

 The Stage 1 thresholds are calculated quarterly using the most recently available data. 

6. Periodic review of Stage 1 thresholds

 The Council has stated that it retains the ability to revisit the Stage 1 thresholds and to 

develop additional thresholds. The Council has also stated that it intends to review the 

appropriateness of both the current Stage 1 thresholds and the levels of the thresholds that 

are specified in dollars as needed, but at least every five years, and to adjust the 

thresholds and levels as the Council may deem advisable.