Alert February 15, 2011

FRB Issues Proposed Rule Regarding the Designation of Systemically Important Nonbank Financial Companies

The FRB issued a proposed rule (the “Proposed Rule“) that implements two provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act related to the authority of the Financial Stability Oversight Council (“FSOC”) to designate systemically important nonbank financial companies for consolidated supervision by the FRB upon the determination by the FSOC that such company could pose a threat to U.S. financial stability.  The Proposed Rule provides that a company is “predominantly engaged in financial activities” if 85% or more of the company’s assets or revenue is derived from activities that are financial in nature (as defined by section 4(k) of the Bank Holding Company Act of 1956, as amended,) in either of its two most recently completed fiscal years.  The Proposed Rule also defines the terms “significant nonbank financial company” and “significant bank holding company” to include any bank holding company or nonbank financial company with at least $50 billion in total consolidated assets and any nonbank financial company designated as systemically important by the FSOC.  Among the factors the FSOC must consider in determining whether to designate a nonbank financial company as systemically important (and thus subject it to FRB supervision) is the extent and nature of their transactions and their relationships with other significant nonbank financial companies and significant bank holding companies.  A significant nonbank financial company, however, is not necessarily systemically important.  Comments on the Proposed Rule must be submitted by March 30, 2011.