The Financial Stability Oversight Council (FSOC) today considered several critical issues raised by the Dodd-Frank Act, as well as far-reaching studies mandated in the law. The meeting today was clearly scripted and included little substantive discussion of the action items discussed in this report. The most imminent action item is a proposal moving the ball forward on naming systemic nonbank financial companies. This builds on an advance notice of proposed rulemaking (see FSM Report SYSTEMIC34) and has a thirty-day deadline, reinforcing FedFin’s view that the FSOC will finalize systemic criteria and turn to naming names as quickly as possible.
The other major issue taken up was the study of the Volcker Rule mandated by the Act (see FSM Report PROPTRADE7). FSOC’s recommendations here will guide, but not necessarily bind, primary regulators and they may well lead to criticism from Sens. Levin D-MI) and Merkley (D-OR), who pushed for tough requirements. In general, FSOC recommends considerable discretion that avoids hard caps on proprietary trading. However, the study does take a firm stand on hedge and private-equity fund investments, suggesting various additional investments that could also be banned for banking organizations. FedFin will shortly provide clients with in-depth analyses of the NPR and the Volcker Rule study.
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