Authority To Require Supervision and Regulation of Certain Nonbank Financial Companies, 4555-4567 [2011-1551]

Agencies

• Financial Stability Oversight Council

[Federal Register Volume 76, Number 17 (Wednesday, January 26, 2011)]
[Proposed Rules]
[Pages 4555-4567]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-1551]


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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: Notice of proposed rulemaking.

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SUMMARY: Section 113 of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act (the ``DFA'') provides the Financial Stability Oversight 
Council (the ``Council'') the authority to require that a nonbank 
financial company be supervised by the Board of Governors of the 
Federal Reserve System (``Board of Governors'') and be subject to 
prudential standards in accordance with Title I of the DFA if the 
Council determines that material financial distress at such a firm, or 
the nature, scope, size, scale, concentration, interconnectedness, or 
mix of the activities of the firm, could pose a threat to the financial 
stability of the United States. The proposed rule describes the 
criteria that will inform, and the processes and procedures established 
under the DFA for, the Council's designation of nonbank financial 
companies under the DFA. The Council, on October 6, 2010, issued an 
advance notice of proposed rulemaking regarding the designation 
criteria in section 113.

DATES: Comments must be received on or before February 25, 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 
https://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 https://www.regulations.gov Web site 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 above. Again, all 
submissions must refer to the title of the notice.

    Public Inspection of Public Comments. All properly submitted 
comments will be available for inspection and downloading at https://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, Deputy Assistant Secretary 
(Financial Institutions), Treasury, at (202) 622-1262, or Jeff King, 
Senior Counsel, Office of the General Counsel, Treasury, at (202) 622-
1978. All responses to this Notice should be submitted via https://www.regulations.gov to ensure consideration.

SUPPLEMENTARY INFORMATION:

I. Background

    Section 111 of the DFA (12 U.S.C. 5321) established the Financial 
Stability Oversight Council. Among the purposes of the Council under 
section 112 of the DFA (12 U.S.C. 5322), are: ``(A) * * * identify[ing] 
risk to the financial

[[Page 4556]]

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) * * 
* promot[ing] 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) * * * respond[ing] 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 firms without 
causing further instability. To address the risks posed by these 
companies, the DFA authorizes the Council to designate nonbank 
financial companies for enhanced prudential standards and consolidated 
supervision by the Board of Governors.
    Specifically, section 113 of the DFA (12 U.S.C. 5323) gives the 
Council the authority to require that a nonbank financial company be 
supervised by the Board of Governors and be subject to enhanced 
prudential standards if the Council determines that material financial 
distress at such a firm, or the nature, scope, size, scale, 
concentration, interconnectedness, or mix of the activities of the 
firm, could pose a threat to the financial stability of the United 
States.\1\ Section 113 of the DFA sets forth a number of factors or 
criteria that the Council must consider in determining whether to 
designate a nonbank financial company for supervision by the Board of 
Governors.
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    \1\ The Council's decision requires the vote of at least two-
thirds of the voting members of the Council then serving, including 
the affirmative vote of the Chairperson of the Council (the 
Secretary of the Treasury).
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    Further, once a nonbank financial company is identified and made 
subject to supervision by the Board of Governors, section 165(d) 
requires the company to file a resolution plan with the Board of 
Governors and the FDIC that is both credible and would facilitate an 
orderly resolution of the company. The requirement to prepare and file 
a resolution plan will not only assist the Board of Governors to 
supervise these companies, but will also provide information essential 
if an orderly liquidation of the company under Title II or another 
resolution mechanism becomes necessary.
    On October 6, 2010, the Council issued an advance notice of 
proposed rulemaking (``ANPR'') (75 FR 61653) through which it sought 
public comment to gather information in developing the specific 
criteria and analytical framework by which it will consider designating 
nonbank financial companies for supervision by the Board of Governors. 
The ANPR posed 15 questions, all of which focused on how to apply the 
statutory considerations for designating a nonbank financial company as 
specified in section 113 of the DFA. The comment period for the ANPR 
closed on November 5, 2010, and comments were submitted from 50 
persons. Of these, 27 were from industry trade associations, 10 from 
individual firms, 5 from individuals, and 8 from other groups. (Comment 
letters are available online at: https://www.regulations.gov)
    These comments addressed the Council's specific questions, as well 
as a range of other issues. Commenters generally encouraged further 
development of the framework for designations under section 113, and 
most supported the overall direction of the ANPR. Commenters, however, 
raised a number of conceptual and technical issues that they believed 
required additional consideration. Some commenters provided specific 
proposed frameworks for applying the criteria in section 113, and 
provided feedback on particular metrics and considerations that should 
be used in the designation process. In addition, some commenters 
provided views on the process of designation itself, emphasizing 
transparency and clear communication surrounding all designation 
decisions. The questions asked by the Council in the ANPR are provided 
below, along with an overview of the comments received on each 
question.

II. Summary of Public Responses to ANPR

    1. What metrics should the Council use to measure the factors it is 
required to consider when making determinations under Section 113 of 
DFA?
    a. How should quantitative and qualitative considerations be 
incorporated into the determination process?
    b. Are there some factors that should be weighted more heavily by 
the Council than other factors in the designation process?
    Most commenters asserted that determinations should be based on a 
combination of qualitative and quantitative considerations. 
Furthermore, there was general consensus among commenters that the 
Council should give significant weight to the following factors in 
making a determination: size, leverage, dependence on short-term 
funding, substitutability, degree of primary regulation, and 
interconnectedness. However, many commenters also emphasized the 
importance of other factors such as concentration and diversification, 
balance sheet composition, complexity, off-balance sheet exposure, 
level of uncollateralized exposures, risk appetite, and a firm's role 
in payment and settlement systems. A number of commenters argued that 
the first filter in the determination process should be an assessment 
of the likelihood of a firm's failure having a material impact on the 
financial system, together with an assessment of the likelihood that it 
could experience material financial distress. Commenters also argued 
that the Council should consider the likelihood that the company would 
be resolved under an orderly liquidation procedure under Title II if it 
were to fail or experience material financial distress.
    2. What types of nonbank financial companies should the Council 
review for designation under DFA? Should the analytical framework, 
considerations, and measures used by the Council vary across 
industries? Across time? If so, how?
    The majority of commenters argued that no nonbank financial company 
should automatically be excluded from potential review for designation. 
Several industry groups and firms also presented arguments generally as 
to why they do not present a systemic risk. Commenters generally agreed 
that analytical frameworks for designation should be tailored to the 
type of industry in which the firm operated, and that the Council 
should focus its attention on unregulated firms and activities. Many 
commenters also urged the Council to focus on those types of companies 
that rely heavily on short-term funding, are highly interconnected with 
other parts of the financial system, and are not already subject to 
consolidated supervision or heightened reporting.
    3. Since foreign nonbank financial companies can be designated, 
what role should international considerations play in designating 
companies? Are there unique considerations for foreign

[[Page 4557]]

nonbank companies that should be taken into account?
    Many respondents noted that many foreign nonbank institutions may 
already be subject to prudential regulatory regimes within their home 
jurisdictions, including regimes that follow internationally recognized 
practices for prudential supervision. These commenters asserted that 
these factors should be taken into account by the Council. Many also 
stressed the need for outreach and coordination with the home 
regulators of foreign institutions, as well as the need to avoid 
overlapping or conflicting regulations.
    4. Are there simple metrics that the Council should use to 
determine whether nonbank financial companies should even be considered 
for designation?
    Many commenters asserted that the Council should not rely solely on 
a limited number of simple metrics in considering firms for 
designation, with the most common example noted as asset size. A 
majority of commenters argued that the Council should consider several 
metrics in combination. However, many of the commenters agreed on one 
metric that they believe should be used to exclude a firm from 
designation: those firms that are already subject to consolidated 
supervision and/or heightened reporting requirements.
    5. How should the Council measure and assess the scope, size, and 
scale of nonbank financial companies?
    a. Should a risk-adjusted measure of a company's assets be used? If 
so, what methodology or methodologies should be used?
    b. Section 113 of DFA requires the Council to consider the extent 
and nature of the off-balance-sheet exposures of a company. Given this 
requirement, what should be considered an off-balance sheet exposure 
and how should they be assessed? How should off-balance sheet exposures 
be measured (e.g., notional values, mark-to-market values, future 
potential exposures)? What measures of comparison are appropriate?
    c. How should the Council take managed assets into consideration in 
making designations? How should the term ``managed assets'' be defined? 
Should the type of asset management activity (e.g., hedge fund, private 
equity fund, mutual fund) being conducted influence the assessment 
under this criterion? How should terms, conditions, triggers, and other 
contractual arrangements that require the nonbank financial firm either 
to fund or to satisfy an obligation in connection with managed assets 
be considered?
    d. During the financial crisis, some firms provided financial 
support to investment vehicles sponsored or managed by their firm 
despite having no legal obligation to do so. How should the Council 
take account of such implicit support?
    A majority of commenters emphasized the importance of looking at 
the scope, size and scale of nonbank financial companies through a 
variety of lenses to best understand the underlying risk. However, one 
commenter argued that measurement tools should be kept as simple and 
uniform as possible across all firms.
    It was generally noted by commenters that some form of risk-
weighting should be used in assessing the scope, size, and scale of 
nonbank financial companies. However, specific methodologies were not 
suggested by commenters.
    Asset Size Calculations--Commenters emphasized that asset size 
should not be looked at in isolation, and that asset size alone does 
not fully reflect a firm's ability to pose systemic risk.
    Treatment of Off-Balance-Sheet Exposures--A majority of commenters 
argued that off-balance-sheet exposures should not be measured simply 
using notional values. In addition, several commenters argued that 
potential future exposures--estimated, for example, as part of stress 
tests--should include a firm's off-balance-sheet exposures. Commenters 
also suggested that off-balance-sheet exposures should include, inter 
alia, all contingent liabilities, parental guarantees, capital support 
arrangements, special purpose vehicle (SPV) support arrangements, and 
repurchase obligations.
    Managed Asset Considerations--Many commenters argued that managed 
assets are fundamentally less risky than those directly owned by a 
financial company. Some commenters also suggested that asset managers 
are less interconnected than other significant nonbank financial 
companies and engage predominantly in long-only trades, which the 
commenters suggested greatly reduced the amount of risk they pose to 
the financial system.
    Implicit Support--Most commenters argued that implicit support 
provided to investment vehicles should not be considered in 
calculations of potential exposure. Most noted that the nature of such 
support can vary widely, and that legal recourse provides a cleaner 
line. In contrast, one commenter argued that the Council should 
consider implicit support in the overall exposures of a firm, 
referencing the support several institutions provided to funds during 
the recent financial crisis, despite having no legal obligation to do 
so.
    6. How should the Council measure and assess the nature, 
concentration, and mix of activities of a nonbank financial firm?
    a. Section 113 of DFA requires the Council to consider 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. Given this 
requirement, are there measures of market concentration that can be 
used to inform the application of this criterion? How should these 
markets be defined? What other measures might be used to assess a 
nonbank financial firm's importance under this criterion?
    b. Section 113 of DFA requires the Council to consider the 
importance of the company as a source of credit for low-income, 
minority, and underserved communities. Given this requirement, are 
there measures of market concentration that can be used to inform the 
application of this criterion? How should these markets be defined? 
What other measures might be used to assess a nonbank financial firm's 
importance under this criterion?
    Comments varied significantly on ways to measure a firm's market 
concentration and mix of activities. However, most commenters suggested 
that a firm's interconnectedness should be considered in evaluating the 
importance of a firm's activities.
    Comments also varied significantly on how to define the scope of 
the markets referenced in section 113, with some commenters advocating 
for broad definitions by product, trading venue and geography, and 
others arguing that markets must be considered distinctly (i.e., 
households versus business, state versus local governments) given their 
unique characteristics.
    7. How should the Council measure and assess the interconnectedness 
of a nonbank financial firm?
    a. What measures of exposure should be considered (e.g., 
counterparty credit exposures, operational linkages, potential future 
exposures under derivative contracts, concentration in revenues, direct 
and contingent liquidity or credit lines, cross-holding of debt and 
equity)? What role should models of interconnectedness (e.g., 
correlation of returns or equity values across firms, stress tests) 
play in the Council's determinations?
    b. Should the Council give special consideration to the 
relationships (including exposures and dependencies) between a nonbank 
financial company and other important financial firms or markets? If 
so, what metrics and thresholds should be used to identify

[[Page 4558]]

what financial firms or markets should be considered significant for 
these purposes? What metrics and thresholds should be used in assessing 
the importance of a nonbank financial company's relationships with 
these other firms and markets?
    Commenters suggested focusing on measures of interconnectedness by 
type of activity rather than by type of firm. Further, most commenters 
suggested focusing on those activities most prone to systemic risk 
through contagion.
    To measure interconnectedness, commenters suggested evaluating, 
among other things, liquidity profile, contagion risk, counterparty 
credit risk, the nature of derivatives activity, levels of 
substitutability, and operational linkages.
    8. How should the Council measure and assess the leverage of a 
nonbank financial firm? How should measures of leverage address 
liabilities, off-balance sheet exposures, and non-financial business 
lines? Should standards for leverage differ by types of financial 
activities or by industry? Should acceptable leverage standards 
recognize differences in regulation? Are there existing standards 
(e.g., the Basel III leverage ratio) for measuring leverage that could 
be used in assessing the leverage of nonbank financial companies?
    Most commenters asserted that it would be important for the Council 
to distinguish between different types and sources of leverage (secured 
versus unsecured; short-term versus long-term; operational versus 
financial). In addition, many commenters suggested varying the 
standards and tools for measuring leverage by the type of business and 
the amount of regulation present in that industry. One commenter, 
however, suggested that leverage rules should be simple and apply 
equally to all nonbank firms according to their size.
    9. How should the Council measure and assess the amount and types 
of liabilities, including the degree of reliance on short-term funding 
of a nonbank financial firm?
    a. What factors should the Council consider in developing 
thresholds for identifying excessive reliance on short-term funding?
    b. How should funding concentrations be measured?
    c. Do some nonbank financial companies have funding sources that 
are contractually short-term but stable in practice (similar to 
``stable deposits'' at banks)?
    d. Should the assessment link the maturity structure of the 
liabilities to the maturity structure and quality of the assets of 
nonbank financial companies?
    Commenters suggested examining the liquidity profile of a firm, 
taking into consideration the quality and duration of funding, 
diversity and mix of the sources of funding, the strength of the firm's 
liquidity providers, the depth of secondary markets in the firm's 
assets, and degree of maturity mismatch. Many also suggested risk-
weighting liabilities to better evaluate the quality and strength of 
the liquidity source. One commenter suggested looking at historical 
industry trends in capital raising for additional color on the 
stability of liabilities for a particular industry.
    10. How should the Council take into account the fact that a 
nonbank financial firm (or one or more of its subsidiaries or 
affiliates) is already subject to financial regulation in the Council's 
decision to designate a firm? Are there particular aspects of 
prudential regulation that should be considered as particularly 
important (e.g., capital regulation, liquidity requirements, 
consolidated supervision)? Should the Council take into account whether 
the existing regulation of the company comports with relevant national 
or international standards?
    Commenters argued that firms already subjected to consolidated 
regulation are less likely to pose systemic risk than those that 
operate in ``regulatory shadows'', and thus are less likely to need 
additional oversight. Many commenters also argued against designating a 
firm that is already subject to some form of regulation, as this could 
result in inconsistencies, interference, and duplication of regulatory 
effort. However, one commenter argued that the degree of current 
regulation should not be a factor in evaluating whether a firm is 
systemically important; it should be a factor in deciding the 
appropriate degree of regulation for a designated firm.
    Several respondents suggested distinguishing firms by industry and 
avoiding imposing bank-centric standards on other industries. The 
quality or extent of existing regulation was also cited by some 
commenters as a factor to be considered. Some commenters also suggested 
that the Council seek to follow international standards, where 
applicable, in designating firms and seek to prevent regulatory 
arbitrage within a particular industry.
    Commenters indicated that the Council has the ability to obtain 
necessary information and data through either prudential regulators or 
the Office of Financial Research to make its determinations.
    11. Should the degree of public disclosures and transparency be a 
factor in the assessment? Should asset valuation methodologies (e.g., 
level 2 and level 3 assets) and risk management practices be factored 
into the assessment?
    Comments related to public disclosures and transparency varied. 
Many commenters favored public disclosure, noting that shareholders, 
other investors and other stakeholders benefit when rules and 
regulations provide adequate protections to owners and ensure that 
important information is promptly and transparently provided to the 
marketplace. Other commenters asserted that public disclosures do not 
have any direct bearing on risk to financial stability, and therefore 
should not be a factor in the designation process.
    Among the commenters, there was a consensus that risk management 
practices be factored into the assessment of a nonbank financial 
company, because they are a key factor in determining the probability 
of material financial distress. Particular aspects of risk management 
practices that were highlighted include: Culture; transparency; risk 
appetite; and management philosophy. One commenter in particular cited 
that effective firm-wide risk management practices in large part 
distinguished companies that experienced the greatest material 
financial distress during the financial crisis from those that 
weathered the crisis.
    Most commenters were silent on asset valuation methodologies except 
for one, which stated that valuation methodologies should not be a 
material factor in the assessment process.
    12. During the financial crisis, the U.S. Government instituted a 
variety of programs that served to strengthen the resiliency of the 
financial system. Nonbank financial companies participated in several 
of these programs. How should the Council consider the Government's 
extension of financial assistance to nonbank financial companies in 
designating companies?
    Some commenters argued that the extension of financial assistance 
to nonbank financial companies should not be considered determinative 
of which entities present systemic risk. Instead, these commenters 
argued that the assistance must be viewed in light of the facts and 
circumstances under which it was provided; whether the assistance was 
drawn upon; whether such assistance was permitted to expire;

[[Page 4559]]

and any new regulatory changes that have been implemented since the 
assistance was initially extended.
    Other commenters argued that those entities receiving federal 
assistance should be held to a higher standard of supervision and 
oversight, and that the receipt of federal assistance should serve as a 
threshold question for the Council in evaluating nonbank financial 
institutions. One commenter in particular stated that nonbank financial 
institutions that received government support during the crisis should 
automatically be regulated under section 113 from the outset.
    13. Please provide examples of best practices used by your 
organization or in your industry in evaluating and considering various 
types of risks that could be systemic in nature.
    a. How do you approach analyzing and quantifying interdependencies 
with other organizations?
    b. When and if important counterparties or linkages are identified, 
how do you evaluate and quantify the risks that a firm is exposed to?
    c. What other types of information would be effective in helping to 
identify and avoid excessive risk concentrations that could ultimately 
lead to systemic instability?
    Responses to this question were few in number, but generally 
grouped the types of risk they faced into credit or counterparty risk, 
and enterprise risk. Suggested approaches in analyzing and managing 
risk were specific to those two categories, and within them, to 
industry type.
    14. Should the Council define ``material financial distress'' or 
``financial stability''? If so, what factors should the Council 
consider in developing those definitions?
    There was broad consensus that the Council should define ``material 
financial distress'' and ``financial stability.''
    Commenters suggested that a company be considered to be in 
``material financial distress'' if it has substantial difficulty 
meeting its financial obligations to its creditors and counterparties, 
or faces capital impairment or insolvency. One commenter warned against 
keeping the concept of financial distress so broad as to cover 
significant problems with a company's business model, a history of 
financial losses that have not resulted in failure of the company, or a 
significant loss of market value or market share of the company. This 
commenter suggested that such concerns should be resolved through 
normal operations of the financial markets.
    Commenters suggested that ``financial stability'' means a condition 
in which financial intermediaries, markets and market infrastructures 
can withstand shocks to the financial system. Others suggested that 
``financial stability'' is characterized by a stable market defined as 
when there are stable prices, an efficient allocation of capital, 
availability of short-term funding, and low rates of failure of 
financial intermediaries and markets. Commenters also encouraged the 
Council to look to widely-used definitions of ``financial stability'' 
used by the Financial Stability Board, the International Monetary Fund, 
the European Central Bank, and the Bank of England.
    15. What other risk-related considerations should the Council take 
into account when establishing a framework for designating nonbank 
financial companies?
    Other suggested risk-related considerations are as follows:
     Legislative intent. Some commenters argued that a 
determination should be based on the legislative history and intent of 
the DFA, and whether the treatment of certain industries was discussed 
when the legislation was drafted.
     Cyclicality. One commenter noted that those least affected 
by the cyclical nature of the economy are less likely to be 
systemically important. This commenter argued that risks are greatest 
at peaks and troughs of economic and market cycles and there is a need 
for diverse and countercyclical behavior.
     Holistic/enterprise-view of risk management. Some 
commenters asserted that an evaluation of a firm should take a holistic 
view of the enterprise and consider how it is managing risks. That 
analysis should consider the characteristics of the firm, its culture, 
risk tolerance and its risk management to help determine the 
probability of its material distress. The four firm-wide risk 
management practices that commenters identified as differentiating good 
from bad performance were: (a) Effective firm-wide risk identification 
and analysis; (b) consistent application of independent and rigorous 
valuation practices across the firm; (c) effective management of 
funding liquidity, capital, and the balance sheet; and (d) informative 
and responsive risk measurement and management reporting.
     Considering the cost of designation. Some commenters 
argued that designation of a nonbank would subject it to regulatory 
burdens without providing the company the same benefits that a 
regulated bank would enjoy. Thus, the commenters argued, the cost of 
designation could reduce the competitiveness of the designated nonbank 
institution and could also potentially cause an exit or flight of 
businesses to less regulated products or jurisdictions.

III. Overview of Proposed Rule

    The proposed rule lays out the framework that the Council proposes 
to use to determine whether a nonbank financial company could pose a 
threat to the financial stability of the United States. It also 
implements the process set forth in the DFA that the Council would use 
when considering whether to subject a firm to supervision by the Board 
of Governors and prudential standards.

A. Considerations for Determination

    As discussed in Part I, there were several themes in the ANPR 
commentary regarding how the Council should analyze these factors in 
the designation process.
    One broad theme was that any analytical framework for designation 
should be tailored to the type of industry in which a firm operates, 
and that different metrics are needed for different industries. From 
the commentary provided, there was clear support for the need to weigh 
qualitative considerations in addition to quantitative factors.
    With respect to the criteria for designation, one theme was that 
that the Council should give significant weight to the following 
factors in making a determination: leverage, liquidity risk, 
interconnectedness, degree of primary regulation, and substitutability. 
Further, responses emphasized the importance of looking at the scope, 
size and scale of nonbank financial companies through a variety of 
lenses to best understand the underlying risk.
    Commenters also noted leverage for its importance and encouraged 
the Council to distinguish between different types and sources of 
leverage (secured versus unsecured; short-term versus long-term; 
operational versus financial), and to use varying standards for 
measuring leverage by type of business.
    Almost all commenters emphasized the importance of examining the 
liquidity profile of a firm, taking into consideration the quality and 
tenor of funding, diversity and mix of the sources of funding, the 
strength of the liquidity providers, and the degree of maturity 
mismatch. Many also suggested risk-weighting liabilities to better 
evaluate the quality and strength of the liquidity sources.

[[Page 4560]]

    Commenters viewed both the degree to which a firm is already 
subjected to regulation or consolidated regulation, as well as the 
substitutability of an institution and its activities, as important 
factors in making a determination. It was generally argued that firms 
already subject to prudential regulation are less likely to pose 
systemic risk than those that operate outside a formal regulatory 
umbrella.

B. Statutory and Analytical Framework for Designations

    As discussed previously, section 113 of the DFA provides the 
Council the authority to require that a nonbank financial company be 
supervised by the Board of Governors and subject to prudential 
standards if the Council determines that material financial distress at 
such a firm, or the nature, scope, size, scale, concentration, 
interconnectedness, or mix of the activities of the firm, could pose a 
threat to the financial stability of the United States.
    Pursuant to the provisions of the DFA, the considerations that the 
Council must use in making a determination on whether the company 
should be subject to supervision by the Board of Governors are as 
follows:
    (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 United States 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 1 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 shall consider similar factors in determining whether a 
foreign nonbank financial company should be designated. In addition, 
the Council shall consider the factors relevant to a U.S. or foreign 
nonbank financial company in determining whether a U.S. or foreign 
company, respectively, should be designated for supervision by the 
Board of Governors under the special anti-evasion provisions in section 
113(c) of the DFA.
    The proposed rule incorporates each of the statutory factors that 
must be considered in determining whether a U.S. or foreign nonbank 
financial company should be designated. The Council proposes to use a 
framework for applying the statutory considerations to its analysis. In 
developing the proposed framework, the Council has taken account of the 
comments received on the ANPR. If adopted in a final rule, this 
framework would be used by the Council in meeting its statutory 
obligations of assessing the threat a nonbank financial company may 
pose to the financial stability of the United States, taking into 
consideration the factors set forth in the DFA. The proposed framework 
for assessing systemic importance is organized around six broad 
categories. Each of the proposed categories reflects a different 
dimension of a firm's potential to experience material financial 
distress, as well as the nature, scope, size, scale, concentration, 
interconnectedness and mix of the company's activities. The six 
categories are as follows:
    1. Size;
    2. Lack of substitutes for the financial services and products the 
company provides;
    3. Interconnectedness with other financial firms;
    4. Leverage;
    5. Liquidity risk and maturity mismatch; and
    6. Existing regulatory scrutiny
    Each of the specific statutory factors is relevant to, and would be 
considered as part of, one or more categories within this analytical 
framework. In addition, the Council would consider any other risk-
related factors that the Council deems appropriate, either by 
regulation or on a case-by-case basis, under section 113(a)(2)(K) or 
(b)(2)(K) in accordance with this analytical framework. The same 
categories and framework would be used in the case of a foreign nonbank 
financial company, although the statutory factors included as part of 
this analysis would be adjusted to reflect the focus of certain of 
those factors on the U.S. operations of the foreign nonbank financial 
company.
    The six categories can be divided into two groups. The criteria in 
the first group--size, lack of substitutes, and interconnectedness--
seek to assess the potential for spillovers from the firm's distress to 
the broader financial system or real economy. Firms that are larger, 
that provide critical financial services for which there are few 
substitutes, and that are highly interconnected with other financial 
firms or markets are more likely to create spillovers if they fall into 
financial distress and hence pose a greater systemic threat to the 
financial stability of the United States. The criteria in the second 
group--leverage, liquidity risk and maturity mismatch, and existing 
regulatory scrutiny--seek to assess how vulnerable a company is to 
financial distress. Firms that are highly leveraged, that have a high 
degree of liquidity risk or maturity mismatch, and that are under 
little or no regulatory scrutiny are more vulnerable to financial 
distress and hence pose a greater systemic threat to the financial 
stability of the United States.
    The Council would evaluate nonbank financial companies in each of 
the six categories, using quantitative metrics where possible. The 
Council expects to use its judgment, informed by data on the six 
categories, to determine whether a firm should be designated as 
systemically important and supervised by the Board of Governors. This 
approach incorporates both quantitative measures and qualitative 
judgments. As part of the qualitative judgment, the Council would 
consider potential spillovers that could occur from financial distress 
or failure of the company in normal times, as well as those that could 
occur in times of widespread financial stress.
    As noted above, each of the statutory factors in sections 113(a)(2) 
and (b)(2) of the DFA would be considered as part of one or more the 
six analytical categories. This is reflected in the following table, 
using the factors relevant to a U.S. nonbank financial company for 
illustrative purposes.\2\
---------------------------------------------------------------------------

    \2\ The corresponding statutory factors for a foreign nonbank 
financial company would be considered under the relevant category or 
categories indicated in the table.

[[Page 4561]]



------------------------------------------------------------------------
                                         Category or categories in which
           Statutory factors             this factor would be considered
------------------------------------------------------------------------
(A) the extent of the leverage of the    Leverage.
 company;.
(B) the extent and nature of the off-    Size; Interconnectedness.
 balance-sheet exposures of the
 company;.
(C) the extent and nature of the         Interconnectedness.
 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   Size; Lack of substitutes.
 source of credit for households,
 businesses, and State and local
 governments and as a source of
 liquidity for the United States
 financial system;.
(E) the importance of the company as a   Lack of substitutes.
 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       Size; Interconnectedness.
 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,      Size; Lack of substitutes;
 concentration, interconnectedness, and   Interconnectedness.
 mix of the activities of the company;.
(H) the degree to which the company is   Existing regulatory scrutiny.
 already regulated by 1 or more primary
 financial regulatory agencies;.
(I) the amount and nature of the         Size; Interconnectedness.
 financial assets of the company;.
(J) the amount and types of the          Liquidity risk and maturity
 liabilities of the company, including    mismatch; Size;
 the degree of reliance on short-term     Interconnectedness.
 funding;.
(K) any other risk-related factors that  Appropriate category or
 the Council deems appropriate.           categories based on the nature
                                          of the additional risk-related
                                          factor.
------------------------------------------------------------------------

    Any determinations of the Council made under the proposed rule 
using this analytical framework would be based on whether the firm's 
material financial distress, or the nature, scope, size, scale, 
concentration, interconnectedness or mix of its activities, could pose 
a threat to the financial stability of the United States in accordance 
with sections 113(a)(1) and (b)(1), as relevant.
    Under the proposal, the Council would use the same six categories 
embodied in the framework in assessing the systemic importance of 
companies in different industry sectors, although the application of 
the framework would be adapted for the risks presented by a particular 
industry sector and the business models present in each sector. For 
example, the metrics that are best suited to measure the six categories 
of systemic importance likely will differ across industry sectors. The 
Council will review these metrics on a periodic basis and revise them 
as appropriate.
    The proposed framework is consistent with the international 
approach to identifying systemically important firms that is currently 
under development by the Basel Committee on Banking Supervision and the 
Financial Stability Board, reducing concerns about an unlevel global 
playing field and regulatory arbitrage. Receipt of previous federal 
assistance as a criterion to identify a systemically significant firm 
will not be considered as a separate criteria in the proposed framework 
as that assistance should be viewed in light of the facts and 
circumstances under which it was provided. Furthermore, the framework 
described above incorporates the concepts of ``material financial 
distress'' and ``financial stability'' without the need to explicitly 
define them in the rule.
    The Council expects to begin assessing the systemic importance of 
nonbank financial companies under the proposed framework shortly after 
adopting a final rule. Subsequently, and on a regular basis, the 
Council expects to screen nonbank financial companies using the six 
categories to identify companies whose material financial distress, or 
the nature, scope, size, scale, concentration, interconnectedness, or 
mix of activities, could pose a threat to the financial stability of 
the United States. In addition, under the DFA, the Council must review 
each designation of a nonbank financial company at least once a year. 
The review would follow the same framework as the initial designation 
and would consider current data on the six categories described above.

C. Other Aspects of Proposed Rule

    The proposed rule also implements the other provisions of section 
113 of the DFA, including (i) the anti-evasion authority of the Council 
set forth in section 113(c) of the DFA; (ii) the provisions governing 
notice of, and the opportunity for a hearing on, a proposed 
determination; and (iii) the provisions regarding consultation, 
coordination and judicial review in connection with a determination.
    Given the importance of this rulemaking and the fact that the 
Council already published and received comment on the ANPR, we are 
providing a 30-day comment period for this NPR.

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 rule 
would apply only to nonbank financial companies whose failure 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's failure could pose a threat to financial stability. 
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 et seq.) 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 Michael Tae, 
Department of the Treasury, Washington, DC 20220. Comments on the 
collection of information must be received by March 28, 2011. Comments 
are specifically requested concerning:

[[Page 4562]]

    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 Sec.  1310.20, Sec.  1310.21 and Sec.  1310.22.
    Estimated total annual reporting burden: 500 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 Order 12866

    It has been determined that this regulation is a significant 
regulatory action as defined in section 3 of Executive Order 12866 
(``Regulatory Planning and Review'') and it has been reviewed by the 
Office of Management and Budget.

List of Subjects in 12 CFR Part 1310

    Nonbank financial companies.

Financial Stability Oversight Council

Authority and Issuance

    For the reasons set forth in the preamble, the Financial Stability 
Oversight Council proposes to establish a new chapter XIII consisting 
of part 1310 in Title 12 of the Code of Federal Regulations, to read as 
follows:

CHAPTER XIII--FINANCIAL STABILITY OVERSIGHT COUNCIL

PART 1310--SUPERVISION AND REGULATION OF CERTAIN NONBANK FINANCIAL 
COMPANIES

Subpart A--General
Sec.
1310.1 Authority and purpose.
1310.2 Definitions.
Subpart B--Determinations
1310.10 Council determination regarding U.S. nonbank financial 
companies.
1310.11 Council determination regarding foreign nonbank financial 
companies.
1310.12 Anti-evasion provision.
Subpart C--Information Collection and Hearings
1310.20 Council information collection and coordination.
1310.21 Notice and opportunity for a hearing and final 
determination.
1310.22 Emergency exception to Sec.  1310.21.
1310.23 Council reevaluation and rescission of determinations.
1310.24 Judicial review of Council's final determination.

    Authority:  12 U.S.C. 5321; 12 U.S.C. 5322; 12 U.S.C. 5323.

Subpart A--General


Sec.  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 whether 
to require that a nonbank financial company be supervised by the Board 
of Governors and be subject to prudential standards because the company 
could pose a threat to the financial stability of the United States.


Sec.  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.
    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 defined by 
regulation of the Board of Governors under section 102(a)(6) of the 
Dodd-Frank Act, including through a branch in the United States.
    Member agency. The term `member agency' means an agency represented 
by a voting member of the Council.
    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 paragraphs 
(2), (3), (4), or (5) of this definition;
    (2) The Securities and Exchange 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. 7211 et seq.);
    (xii) The Securities Investor Protection Corporation established 
under the Securities Investor Protection

[[Page 4563]]

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 adviser 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 under the Commodity Exchange Act (7 
U.S.C. 1 et seq.), with respect to the activities of the registered 
entity that require the registered entity to be registered under that 
Act;
    (4) The State insurance authority of the State in which an 
insurance company is domiciled, with respect to the insurance 
activities and activities that are incidental to such insurance 
activities of an insurance company that is subject to supervision by 
the State insurance authority under State insurance law; and
    (5) The Federal Housing Finance Agency, with respect to Federal 
Home Loan Banks or the Federal Home Loan Bank System, and with respect 
to the Federal National Mortgage Association or the Federal Home Loan 
Mortgage Corporation.
    Prudential standards. The term ``prudential standards'' means 
enhanced supervision and regulatory standards developed by the Board of 
Governors under section 165 of the Dodd-Frank Act.
    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.
    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.), or 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, or a board of trade designated as a 
contract market (or parent thereof), or a derivatives clearing 
organization (or parent thereof, unless the parent is a bank holding 
company), swap execution facility or a 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 defined by 
regulation of the Board of Governors under section 102(a)(6) of the 
Dodd-Frank Act.

Subpart B--Determinations


Sec.  1310.10  Council determination regarding U.S. nonbank financial 
companies.

    (a) Determination. The Council may determine that a U.S. nonbank 
financial company shall be supervised by the Board of Governors and 
shall be subject to prudential standards if the Council determines that 
material financial distress at the U.S. nonbank financial company, or 
the nature, scope, size, scale, concentration, interconnectedness, or 
mix of the activities of the U.S. 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 may 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) Considerations. In making a proposed or final determination 
with respect to a U.S. nonbank financial company under this section, 
the Council shall consider:
    (1) The extent of the leverage of the company and its subsidiaries;
    (2) The extent and nature of the off-balance-sheet exposures of the 
company and its subsidiaries;
    (3) The extent and nature of the transactions and relationships of 
the company and its subsidiaries with other significant nonbank 
financial companies and significant bank holding companies;
    (4) The importance of the 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 company and its subsidiaries 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;
    (6) The extent to which assets are managed rather than owned by the 
company and its subsidiaries, and the extent to which ownership of 
assets under management is diffuse;

[[Page 4564]]

    (7) The nature, scope, size, scale, concentration, 
interconnectedness, and mix of the activities of the company and its 
subsidiaries;
    (8) The degree to which the 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 company 
and its subsidiaries;
    (10) The amount and types of the liabilities of the 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.
    (d) Consultations. 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 this Sec.  1310.10 and with the primary financial regulatory 
agency, if any, of any subsidiary of such nonbank financial company 
before the Council makes any final determination under this Sec.  
1310.10 with respect to such nonbank financial company.
    (e) 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 otherwise obtained by the Council, 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 or foreign nonbank financial 
company should be designated under this section or Sec.  1310.11, as 
applicable, for supervision by the Board of Governors.
    (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 subsection in connection with any 
determination by the Council under paragraph (a) of this section or 
Sec.  1310.11 with respect to the company.
    (f) International coordination. In exercising its duties under this 
section with respect to 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.


Sec.  1310.11  Council determination regarding foreign nonbank 
financial companies.

    (a) Determination. The Council may determine that a foreign nonbank 
financial company shall be supervised by the Board of Governors and 
shall be subject to prudential standards if the Council determines that 
material financial distress at the foreign nonbank financial company, 
or the nature, scope, size, scale, concentration, interconnectedness, 
or mix of the activities of the foreign 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 may not be delegated by the Coun