At its meeting marking the first anniversary of Dodd-Frank’s enactment, the Financial Stability Oversight Council spent much of its time congratulating itself for working well together and doing as much as reasonably could be expected. It finalized a rule setting the standards for designating financial market utilities (FMUs) as systemic clearing houses, although a similar regime for payment, settlement and clearing organizations outside the securities markets has yet to advance. However, although seemingly minor, one FSOC decision announced at this session is a significant win for systemic counterparties. As noted, the Council rejected the FDIC’s call for a specific, ex ante haircut on secured creditors, ending speculation that an idea espoused during action on the law as a way to end moral hazard would advance. As anticipated, the FSOC failed to approve a proposal on naming systemic non-banks (see Client Reports in the SYSTEMIC series). This report analyzes FSOC action, which will be followed by FedFin in-depth reports as the new rule is analyzed and the haircut study and another on FSOC’s work on emerging financial-market risks are released.
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