12 Cfr 1310

Pt. 1310

12 CFR Ch. XIII (1–1–15 Edition)

(i) Charging interest. The Council may
charge interest on any unpaid bill
starting on the 31st day following the
date of billing the requester. Interest
charges will be assessed at the rate
provided in 31 U.S.C. 3717 and will accrue from the date of the billing until
payment is received by the Council.
The Council will follow the provisions
of the Debt Collection Act of 1982 (Pub.
L. 97–365, 96 Stat. 1749), as amended,
and its administrative procedures, including the use of consumer reporting
agencies, collection agencies, and offset.
(j) Aggregating requests. If the Council
reasonably determines that a requester
or a group of requesters acting together is attempting to divide a request into a series of requests for the
purpose of avoiding fees, the Council
may aggregate those requests and
charge accordingly. The Council may
presume that multiple requests involving related matters submitted within a
thirty (30) calendar day period have
been made in order to avoid fees. The
Council shall not aggregate multiple
requests involving unrelated matters.

PART 1310—AUTHORITY TO REQUIRE SUPERVISION AND REGULATION OF CERTAIN NONBANK
FINANCIAL COMPANIES
Subpart A—General
Sec.
1310.1
1310.2

Authority and purpose.
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.

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Subpart C—Information Collection; Proposed and Final Determinations; Evidentiary Hearings
1310.20 Council information collection; consultation; coordination; confidentiality.
1310.21 Proposed and final determinations;
notice and opportunity for an evidentiary hearing.
1310.22 Emergency exception to § 1310.21.
1310.23 Council reevaluation and rescission
of determinations.

APPENDIX A 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.
SOURCE: 77 FR 21651, Apr. 11, 2012, unless
otherwise noted.

Subpart A—General
§ 1310.1 Authority and purpose.
(a) Authority. This part is issued by
the 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

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Financial Stability Oversight Council

§ 1310.2

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 Dodd-Frank
Act (12 U.S.C. 5311(a)(6)) and pursuant
to any 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 DoddFrank 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 pursuant to § 1310.21 or § 1310.22, as applicable;
(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;

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§ 1310.2

12 CFR Ch. XIII (1–1–15 Edition)

(xi) The Public Company Accounting
Oversight Board established under the
Sarbanes-Oxley Act of 2002 (15 U.S.C.
7201 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 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

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Financial Stability Oversight Council

§ 1310.11

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 Dodd-Frank
Act (12 U.S.C. 5311(a)(6)), and pursuant
to any 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 DoddFrank Act (12 U.S.C. 5311(b)).

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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;

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§ 1310.11

12 CFR Ch. XIII (1–1–15 Edition)

(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
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.

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Financial Stability Oversight Council

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§ 1310.12

§ 1310.20

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 Dodd-Frank
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 (acting through the Office of Financial Research, to the extent the
Council determines necessary) 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,

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§ 1310.21

12 CFR Ch. XIII (1–1–15 Edition)

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.
(4) The Council may, to the extent
the Council determines appropriate,
accept the submission of any data, information, and reports voluntarily submitted by any 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.
(c) Consultation. The Council shall
consult with the primary financial regulatory agency, if any, for each
nonbank financial company or subsidiary of a nonbank financial company
that is being considered for supervision
by the Board of Governors under
§ 1310.10(a) 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.
(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,
and any regulations thereunder adopted by the Council, shall apply to any
data, information, and reports submitted under this part.
§ 1310.21 Proposed and final determinations; notice and opportunity
for an evidentiary hearing.
(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
(which shall be not less than 30 days
after the date of receipt by the
nonbank financial company of the notice described in paragraph (a)(1)), 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

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Financial Stability Oversight Council

§ 1310.21

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
nonpublic, written or oral evidentiary
hearing before the Council or its representatives 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 a nonpublic 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) Determine whether to make a
final determination under § 1310.10(a);
(2) Notify the nonbank financial company, in writing, of any final determination
of
the
Council
under
§ 1310.10(a), which notice shall contain a
statement of the basis for the decision
of the Council; and
(3) If the Council makes a final determination under § 1310.10(a), 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) Determine whether to make a
final determination under § 1310.10(a);
(2) Notify the nonbank financial company, in writing, of any final determination
of
the
Council
under
§ 1310.10(a), which notice shall contain a
statement of the basis for the decision
of the Council; and
(3) If the Council makes a final determination under § 1310.10(a), 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).

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12 CFR Ch. XIII (1–1–15 Edition)

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§ 1310.22 Emergency
§ 1310.21.

exception

to

(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 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 nonpublic, written or oral
evidentiary hearing before the Council
or its representatives to contest such
waiver or modification, not later than
10 days after the date of receipt by the
nonbank financial company of the no-

tice 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, for a nonpublic 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) 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) Make a final determination regarding the waiver or modification
under this § 1310.22;
(2) 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
(3) If the Council makes a final determination under § 1310.10(a), 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

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Financial Stability Oversight Council

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(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) Notice of reevaluation; submission of
materials. The Council shall provide
written notice to each nonbank financial company subject to a currently effective determination prior to the
Council’s reevaluation of such determination under paragraph (a) of this
section and shall provide such nonbank
financial company an opportunity to
submit written materials, within such
time as the Council determines to be
appropriate (which shall be not less
than 30 days after the date of receipt
by the nonbank financial company of
such notice), to the Council to contest
the 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.
(c) 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.
(d) Notice of rescission. If the Council
rescinds a determination with respect
to any nonbank financial company
under paragraph (a) of this section, the
Council shall notify the nonbank financial company, in writing, of such rescission and publicly announce such rescission.

APPENDIX A 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’’) 1 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 activities of the nonbank
financial company 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.2
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 lists
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
1 See

12 U.S.C. 5323.
addition to these considerations, the
Council may consider any other risk-related
factors that the Council deems appropriate.
12 U.S.C. 5323(a)(2)(K) and (b)(2)(K).
2 In

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Pt. 1310, App. A

12 CFR Ch. XIII (1–1–15 Edition)

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 in the first stage on
quantitative thresholds using information
available through existing public and regulatory sources, nonbank financial companies
should be able to assess whether they will 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
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’’).
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 DoddFrank Act, to include any corporation, limited liability company, partnership, business
trust, association, or similar organization.
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.

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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.
In evaluating a nonbank financial company under one of the Determination Standards, the Council intends to assess how a
nonbank financial company’s material financial distress or activities could be transmitted to, or otherwise affect, other firms or
markets, thereby causing a broader impairment of financial intermediation or of financial market functioning. An impairment of
financial intermediation and financial market functioning can occur 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, total debt
outstanding, and leverage ratio.
• Asset liquidation. A nonbank financial
company holds assets that, if liquidated
quickly, would cause a fall in asset prices
and thereby significantly disrupt trading or
funding in key markets or cause significant
losses or funding problems for other firms
with similar holdings. 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 shortterm 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

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Financial Stability Oversight Council

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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, at 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

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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 Coun-

cil determines that the nature, scope, size,
scale, concentration, interconnectedness, or
mix of the activities of the nonbank financial company 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. 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 risk-related factors, into six categories: size, interconnectedness, substitutability, 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

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12 CFR Ch. XIII (1–1–15 Edition)

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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 the
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 considerations relevant to a U.S. nonbank financial company for illustrative purposes.3

Statutory considerations:

Category or categories in which this consideration would be addressed:

(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.
(K) Any other risk-related factors that the Council deems appropriate ...................

Leverage.
Size; interconnectedness.
Interconnectedness.

Size; substitutability.

Substitutability.

Size; interconnectedness; substitutability.
Size; interconnectedness; substitutability.
Existing regulatory scrutiny.
Size; interconnectedness.
Liquidity risk and maturity mismatch; size;
interconnectedness.
Appropriate category or categories based on
the nature of the additional risk-related factor.

2. Six-Category Framework

Interconnectedness

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 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

3 The
corresponding statutory considerations for a foreign nonbank financial com-

pany would be considered under the relevant
categories indicated in the table.

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Financial Stability Oversight Council

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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 or its parent is the reference entity.
• Total debt outstanding, which captures a
nonbank financial company’s sources of
funding.
• Reinsurance obligations, which measure
the reinsurance risk assumed from non-affiliates net of retrocession.

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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 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

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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 generally accepted accounting principles in the United States
(‘‘GAAP’’) or the nonbank financial company’s applicable financial reporting standards, depending on the availability of data
and the stage of the determination process.
• 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.

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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 can be measured by the ratio of assets 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 to net assets under management, which is intended to show how much
off-balance 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

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Pt. 1310, App. A

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 long-term assets may be limited, exposing the company to interest rate fluctuations and reinvestment risk.
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.

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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, metrics that may be used to
assess existing regulatory scrutiny include:
• The extent of state or federal regulatory
scrutiny, including processes or systems for
peer review; inter-regulatory coordination
and cooperation; and whether existing regulators have the ability to impose detailed
and timely reporting obligations, capital and
liquidity requirements, and enforcement actions, and to resolve the company.
• Existence and effectiveness of consolidated supervision, and a determination of
whether and how non-regulated entities and
groups within a nonbank financial company
are supervised on a group-wide basis.

• 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.
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. As part of that
consultation process, the Council intends to
consult with the primary financial regulatory agency, if any, of each significant subsidiary of the nonbank financial company, to
the extent the Council deems appropriate.
The Council also intends to fulfill its statutory obligation to rely whenever possible on
information available through the Office of
Financial Research (the ‘‘OFR’’), member
agencies, or the nonbank financial company’s primary financial regulatory agencies
before requiring the submission of reports
from any nonbank financial company.4
Following Stage 2, nonbank financial companies that are selected for additional review
4 See

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

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12 CFR Ch. XIII (1–1–15 Edition)

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
§ 1310.21(c) of the Council’s rule.5
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.

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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 assessed
during Stage 2. During the Stage 1 process,
the Council will evaluate nonbank financial
companies using only 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
5 See

12 CFR 1310.21(c).

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.6 The thresholds are:
• Total Consolidated Assets. The Council intends to apply a size threshold of $50 billion
in total consolidated assets. 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. Derivative liabilities equal
the fair value of derivative contracts in a
negative position. For nonbank financial
companies that disclose the effects of master
6 While the Council expects that its determinations under section 113 of the DoddFrank Act will be with respect to individual
legal entities, the Council has authority to
assess nonbank financial companies, and
their relationships with other nonbank financial companies and market participants,
in a manner that addresses the statutory
considerations and such other factors as the
Council deems appropriate. For example, for
purposes of applying the six thresholds to investment funds (including private equity
firms and hedge funds), the Council may consider the aggregate risks posed by separate
funds that are managed by the same adviser,
particularly if the funds’ investments are
identical or highly similar. In performing
this analysis, the Council may use data reported on Form PF with the Securities and
Exchange Commission or the Commodity
Futures Trading Commission.

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Financial Stability Oversight Council

Pt. 1310, App. A

netting agreements and cash collateral held
with the same counterparty on a net basis,
the Council intends to calculate derivative
liabilities after taking into account the effects of these arrangements. This threshold
serves as a proxy for interconnectedness, as
a nonbank financial company that has a
greater level of derivative liabilities would
have higher counterparty exposure throughout the financial system.
• Total Debt Outstanding. The Council intends to apply a threshold of $20 billion in
total debt outstanding. The Council will define total debt outstanding broadly and regardless of maturity to include loans (whether secured or unsecured), bonds, repurchase
agreements, commercial paper, securities
lending arrangements, surplus notes (for insurance companies), and other forms of indebtedness. This threshold serves as a proxy
for interconnectedness, as nonbank financial
companies with a large amount of outstanding debt are generally more interconnected with the broader financial system,
in part because financial institutions hold a
large proportion of outstanding debt. An
analysis of the distribution of debt 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 financial crisis in
2007–2008, including Bear Stearns, Countrywide, and Lehman Brothers.
• Leverage Ratio. The Council intends to
apply a threshold leverage ratio of total consolidated assets (excluding separate 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 financial
crisis, including Bear Stearns, Countrywide,
IndyMac Bancorp, and Lehman Brothers.
• Short-Term Debt Ratio. The Council intends to apply a threshold ratio of total debt
outstanding (as defined above) 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 financial crisis, including Bear Stearns and Lehman Brothers.
The Council intends generally to apply the
Stage 1 thresholds using 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 statutory accounting principles, international financial
reporting standards, or such other data as
are available to the Council.
For purposes of evaluating any U.S.
nonbank financial company, the Council intends to apply each of the Stage 1 thresholds
based on the global assets, liabilities and operations of the company and its subsidiaries.
In contrast, for purposes of evaluating any
foreign nonbank financial company, the
Council intends to calculate the Stage 1
thresholds based solely on the U.S. assets, liabilities and operations of the foreign
nonbank financial company and its subsidiaries.
The Council intends to reapply the Stage 1
thresholds to nonbank financial companies
using the most recently available data on a
quarterly basis, or less frequently for
nonbank financial companies with respect to
which quarterly data are unavailable.
The Council intends to review the appropriateness of both the 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.
The Stage 1 thresholds are intended to
identify nonbank financial companies for
further evaluation by the Council and to
help a nonbank financial company predict
whether such company will be subject to additional review. Because the uniform quantitative thresholds may not capture all types
of nonbank financial companies and all of
the potential ways in which a nonbank financial company could pose a threat to financial stability, the Council may initially
evaluate any nonbank financial company
based on other firm-specific qualitative or
quantitative factors, irrespective of whether
such company meets the thresholds in Stage
1.
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,

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12 CFR Ch. XIII (1–1–15 Edition)

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 voluntarily submitted by the company. 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
company-specific 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’’).

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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 activities of the
company. 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.7 This information will generally be
collected by the OFR.8 Before requiring the
submission of reports from any nonbank financial company that is regulated by a
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. Council members and their agencies and staffs will maintain the confidentiality of such information in accordance
with 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 opacity of the nonbank financial
company’s 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, which may mitigate or aggravate the potential of a nonbank financial
company to pose a threat to U.S. financial
stability. 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 the nonbank
financial company in a manner that would
mitigate the risk that the nonbank financial
7 See

section 1310.21(a) of the rule.
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.
8 Under

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Financial Stability Oversight Council

Pt. 1320

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 cross-border 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, and of 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 or subsidiary of a 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 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 a Proposed Determination in the
future at the Council’s discretion.
A nonbank financial company that is subject to a Proposed Determination may request a nonpublic 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 § 1310.21(c) of the Council’s rule,9 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. When practicable and consistent with the purposes of
the determination process, the Council intends to provide a nonbank financial company with a notice of a final determination
at least one business day before publicly announcing the determination pursuant to
§ 1310.21(d)(3), § 1310.21(e)(3) or § 1310.22(d)(3) of
the Council’s rule.10 The Council does not intend to publicly announce the name of any
nonbank financial company that is under
evaluation for a determination prior to a
final determination with respect to such
company. In accordance with section 113(h)
of the Dodd-Frank 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.

PART 1320—DESIGNATION OF
FINANCIAL MARKET UTILITIES
Subpart A—General
Sec.
1320.1
1320.2

Authority and purpose.
Definitions.

Subpart B—Consultations, Determinations
and Hearings
1320.10 Factors for consideration in designations.
1320.11 Consultation with financial market
utility.
1320.12 Advance notice of proposed determination
9 See

12 CFR 1310.21(c).
12 CFR 1310.21(d)(3), 1310.21(e)(3) and
1310.22(d)(3).
10 See

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