One of the most prominent features of the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank") is the creation of the Financial Stability Oversight Council (FSOC). (1) The formation of the FSOC is the centerpiece of an attempt by the government to regain regulatory oversight of a financial services industry that has outgrown the traditional banking regulatory structure. The FSOC is headed by the Secretary of the Department of the Treasury ("Secretary") and brings together federal and state financial regulatory agencies and authorities to, among other things, (1) identify and address systemic risks to the stability of the U.S. financial system; (2) promote market discipline by eliminating expectations that the government will shield shareholders, creditors or counterparties from losses in the event of an institution's failure; (3) designate nonbanking financial companies that are determined to be significant to U.S. financial stability ("Designated Nonbanks") to be placed under an enhanced supervisory regime; and (4) make recommendations to the Board of Governors of the Federal Reserve System ("the Board") regarding heightened capital requirements and other prudential standards to be imposed by the Board on Designated Nonbanks and large, interconnected bank holding companies ("Large BHCs"). (2)
Large BHCs and Designated Nonbanks (together, "Systemically Significant Institutions") are the focus of the FSOC's activities. Because Large BHCs in the aggregate hold a substantial portion of the total assets of all U.S. depository organizations, the enhanced prudential supervision imposed on Large BHCs will have a significant impact on the entire U.S. banking industry and the U.S. economy. (3) Congress has delegated significant authority to the federal financial regulatory agencies to adopt regulations to implement Dodd-Frank, such as what are likely to be complex new requirements regarding the creation of living wills and the imposition of the Federal Deposit Insurance Corporation (FDIC) receiverships. The ultimate impact of Dodd-Frank will not be known until those regulations are adopted and take effect, which in some cases will not occur for several years.
What Entities Are Covered?
Large BHCs include all bank holding companies that have total consolidated assets of more than $50 billion. (4) If a Large BHC were to divest itself of its bank subsidiaries or to convert its bank subsidiaries to savings and loan associations or to another type of insured depository institution that is not a "bank" under the Bank Holding Company Act (BHCA), it would no longer be a bank holding company or a Large BHC. (5) However, a divestiture or conversion may not relieve a Large BHC from heightened supervision.
If a bank holding company had more than $50 billion of total consolidated assets as of January 1, 2010 (i.e., it was a Large BHC as of that date), and received assistance under the Emergency Economic Stabilization Act of 2008 (i.e., it received funds from the Department of the Treasury under the Troubled Asset Relief Program), and ceases at any time to be a bank holding company, it will not be a Large BHC but will automatically continue to be regulated as a...