Reuters: Regulatory News: UPDATE 1-US risk council says 8 clearinghouses "systemically important"

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UPDATE 1-US risk council says 8 clearinghouses "systemically important" Jul 18th 2012, 20:29 Wed Jul 18, 2012 4:29pm EDT By Alexandra Alper and Rachelle Younglai WASHINGTON, July 18 (Reuters) - The U.S. council of regulators on Wednesday chose eight clearinghouses as "systemically important," a label that will subject the financial institutions to tougher rules and more oversight. The eight financial firms, which include Chicago Mercantile Exchange Inc. and The Depository Trust Company, will face heightened scrutiny from the Federal Reserve and their own regulator. They may also receive government backstops, and in emergency situations the Fed can decide whether to give the clearinghouses access to the discount window. Treasury Secretary Timothy Geithner chairs the Financial Stability Oversight Council, which was set up to monitor risks in the financial system and prevent a repeat of the 2007-09 economic crisis. The industry has been waiting for the council to start choosing which non-bank financial institutions, such as private equity firms and insurance companies, could pose a threat to the financial system. A "systemically important" label from the council would force the financial firm to carry more capital and adhere to stricter rules. Other entities designated on Wednesday are: The Clearing House Payments Company, CLS Bank International, Fixed Income Clearing Corporation, ICE Clear Credit LLC, National Securities Clearing Corporation and The Options Clearing Corporation. "We have established the ability to put all the largest financial firms under increased supervision and enhanced prudential standards, through designations by this Council, whether they are banks or nonbanks," Geithner said in prepared remarks. Geithner has said he hopes to complete these designations by the end of the year. The Council also released its second annual report, highlighting areas of financial risk and recommendations for bolstering U.S. institutions against such headwinds. They also released a report, mandated by the 2010 Dodd-Frank Act, that analyzes the utility of contingent capital, a type of bond that converts to equity and is designed to provide banks with more capital when they need it, such as in times of crisis. Link this Share this Digg this Email Reprints

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