Reuters: Regulatory News: UPDATE 1-U.S. financial risk council readies systemic tag

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UPDATE 1-U.S. financial risk council readies systemic tag Apr 3rd 2012, 20:08 Tue Apr 3, 2012 4:08pm EDT * FSOC finalizes rule on how it will pick systemic firms * Insurers, hedge funds anxious to see if they'll get picked * Firms expected to get clarity by end of this year By Dave Clarke WASHINGTON, April 3 (Reuters) - The U.S. financial risk council approved a final rule on Tuesday laying out how it will decide which financial companies outside the banking industry will face new scrutiny by the Federal Reserve in hopes of preventing a repeat of the 2007-2009 financial crisis. The financial industry's attention will now turn to which companies will actually be tapped for this additional oversight, something Treasury Secretary Timothy Geithner has said should happen by the end of this year. Large insurers, hedge funds and other financial firms are hoping to avoid the systemic designation and have been trying to convince regulators to leave them alone. BlackRock Inc, General Electric's GE Capital unit and MetLife Inc are among the companies that have written to regulators trying to avoid making the list. The final rule was approved at a public meeting by the Financial Stability Oversight Council (FSOC), headed by the Treasury secretary and counts all the major financial regulators among its members. The ability to keep a closer eye on financial giants other than banks is a major aspect of the 2010 Dodd-Frank reform law and is supposed to prevent the chaos that occurred after the government was caught flat-footed in late 2008 when insurer American International Group Inc ran into trouble. Ultimately the government rescued AIG with $182 billion in government funds. Fed oversight could be costly as it involves maintaining higher capital reserves, having a plan for liquidation in the event of a failure and other regulatory requirements laid out in the law. Companies trying to avoid the systemic designation have also expressed concerns about how a bank regulator such as the Fed would oversee industries outside its area of expertise. Under Dodd-Frank, banks with more than $50 billion in assets are automatically subject to greater scrutiny by the Fed. ON WATCH Dodd-Frank created the council to monitor risks to the financial system and to provide a forum for regulators to share information in an effort to get the different agencies to cooperate. The final rule ultimately gives FSOC the ability to designate any financial firm for greater oversight and provides more details on the type of companies that will be considered. Treasury staff said there are only minor differences between a proposal released in October and what was approved on Tuesday. Under the final rule, regulators will evaluate companies that have more than $50 billion in total consolidated assets and meet at least one of the other criteria including: whether it has $3.5 billion in derivative liabilities and $20 billion in outstanding loans borrowed and bonds issued. Link this Share this Digg this Email Reprints

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