The Dodd-Frank Act requires FSOC to assess a minimum of ten considerations when evaluating nonbank financial companies in order to assess the potential impact of a company’s financial distress on the broader economy: size, interconnectedness, and substitutability, as well as to assess the vulnerability of a company to financial distress: leverage, liquidity risk and maturity mismatch, and existing regulatory scrutiny.
Lance noted the FSOC “will approach each determination using a consistent framework, but ultimately each designation must be made on a company-specific basis.”
Lance also discussed the FSOC’s interpretive guidance which explains the three-stage process that will be used in assessing nonbank financial companies:
- Stage 1: FSOC will apply uniform quantitative thresholds to identify those nonbank financial companies that will be subject to further evaluation.
- Stage 2: FSOC will analyze the nonbank financial companies identified in Stage 1 using a broad range of information available primarily through existing public and regulatory sources.
- Stage 3: FSOC will contact each nonbank financial company that it believes merits further review to collect information directly from the company.
Read more about the HFS hearing.