The Financial Stability Oversight Council (FSOC) approved on Tuesday afternoon the criteria it will use for determining whether an insurer is “systemically significant” and thereby suitable for stricter federal regulation. The FSOC unanimously approved the rule, which itself is consistent with the regulation the FSOC proposed in November.
The final regulation establishes a three-step screening process for determining whether a non-bank such as an insurer should be subject to regulation by the Federal Reserve Board as well as state regulators because, under the criteria established under the Dodd-Frank Act, it represents a potential risk to the stability of the U.S. financial system.
At the center of this qualitative screening method is the standard that a nonbank financial company will be subject to further evaluation if it has at least $50 billion of total consolidated assets and meets or exceeds any one of the following thresholds:
- $30 billion in gross notional credit default swaps outstanding for which the nonbank financial company is the reference entity;
- $3.5 billion in derivative liabilities;
- $20 billion of total debt outstanding;
- 15 to 1 leverage ratio, as measured by total consolidated assets (excluding separate accounts) to total equity; or
- 10 percent ratio of short-term debt (having a remaining maturity of less than 12 months) to total consolidated assets.
The second stage will be an analysis of the nonbank financial companies identified in Stage 1 using a broad range of information available to the FSOC primarily through existing public and regulatory sources.