Federal Reserve Board Proposal Defines Parameters of FSOC Systemically Significant Designation
February 25, 2011
Kevin L. Petrasic & Erica Berg Brennan
Title I of the Dodd-Frank Wall Street Reform and Consumer Protection Act (DFA) extends the purview of federal bank regulators beyond the traditional supervision of insured depository institutions and their holding companies to include oversight of systemically significant nonbank financial companies. Key to this new regulatory process is establishment of the Financial Stability Oversight Council (FSOC), pursuant to Section 111 of the DFA. The FSOC is chaired by the Secretary of the Treasury, and its voting members include the heads of the principal banking regulatory authorities. Its principal responsibilities include identifying risks to the financial stability of the U.S., promoting market discipline, and responding to emerging threats to the U.S. financial system. The FSOC is also responsible for determining which nonbank financial companies are deemed systemically significant and, thus, subject to regulation by the Federal Reserve Board (FRB). Pursuant to Section 113 of the DFA, the criteria for making this determination are established by the FRB.