§5325 — Title 12 Banks and Banking | U.S. Code

Summary

The Council can tell the Federal Reserve to make tougher safety, reporting, and disclosure rules for very large, connected nonbank firms overseen by the Fed and for big bank holding companies. These rules must be stricter than for smaller firms and can get tougher based on a company’s size, capital, risk, complexity, activities, whether it owns a bank, and other risk factors. The Council can set rules for individual firms or groups, set higher asset cutoffs, treat foreign firms with fairness, avoid sudden rule jumps from small changes, and fit rules to a company’s main business. Examples of possible rules include higher capital and liquidity standards, limits on leverage and short-term debt, limits on concentration of risk, plans for orderly failure and credit-exposure reports, stronger public disclosures, contingent capital (debt that can turn to equity), and overall risk-management rules. The Council must study contingent capital and report to Congress not later than 2 years after July 21, 2010, and may later recommend minimum contingent capital and other specific requirements.

Title 12, §5325

Banks and Banking — Source: USLM XML via OLRC

(a)(1)In order to prevent or mitigate risks to the financial stability of the United States that could arise from the material financial distress, failure, or ongoing activities of large, interconnected financial institutions, the Council may make recommendations to the Board of Governors concerning the establishment and refinement of prudential standards and reporting and disclosure requirements applicable to nonbank financial companies supervised by the Board of Governors and large, interconnected bank holding companies, that—

(A)are more stringent than those applicable to other nonbank financial companies and bank holding companies that do not present similar risks to the financial stability of the United States; and

(B)increase in stringency, based on the considerations identified in subsection (b)(3).

(2)In making recommendations under this section, the Council may—

(A)differentiate among companies that are subject to heightened standards on an individual basis or by category, taking into consideration their capital structure, riskiness, complexity, financial activities (including the financial activities of their subsidiaries), size, and any other risk-related factors that the Council deems appropriate; or

(B)recommend an asset threshold that is higher than the applicable threshold for the application of any standard described in subsections (c) through (g).

(b)(1)The recommendations of the Council under subsection (a) may include—

(A)risk-based capital requirements;

(B)leverage limits;

(C)liquidity requirements;

(D)resolution plan and credit exposure report requirements;

(E)concentration limits;

(F)a contingent capital requirement;

(G)enhanced public disclosures;

(H)short-term debt limits; and

(I)overall risk management requirements.

(2)In making recommendations concerning the standards set forth in paragraph (1) that would apply to foreign nonbank financial companies supervised by the Board of Governors or foreign-based bank holding companies, the Council shall—

(A)give due regard to the principle of national treatment and equality of competitive opportunity; and

(B)take into account the extent to which the foreign nonbank financial company or foreign-based bank holding company is subject on a consolidated basis to home country standards that are comparable to those applied to financial companies in the United States.

(3)In making recommendations concerning prudential standards under paragraph (1), the Council shall—

(A)take into account differences among nonbank financial companies supervised by the Board of Governors and bank holding companies described in subsection (a), based on—

(i)the factors described in subsections (a) and (b) of section 5323 of this title;

(ii)whether the company owns an insured depository institution;

(iii)nonfinancial activities and affiliations of the company; and

(iv)any other factors that the Council determines appropriate;

(B)to the extent possible, ensure that small changes in the factors listed in subsections (a) and (b) of section 5323 of this title would not result in sharp, discontinuous changes in the prudential standards established under section 5365 of this title; and

(C)adapt its recommendations as appropriate in light of any predominant line of business of such company, including assets under management or other activities for which particular standards may not be appropriate.

(c)(1)The Council shall conduct a study of the feasibility, benefits, costs, and structure of a contingent capital requirement for nonbank financial companies supervised by the Board of Governors and bank holding companies described in subsection (a), which study shall include—

(A)an evaluation of the degree to which such requirement would enhance the safety and soundness of companies subject to the requirement, promote the financial stability of the United States, and reduce risks to United States taxpayers;

(B)an evaluation of the characteristics and amounts of contingent capital that should be required;

(C)an analysis of potential prudential standards that should be used to determine whether the contingent capital of a company would be converted to equity in times of financial stress;

(D)an evaluation of the costs to companies, the effects on the structure and operation of credit and other financial markets, and other economic effects of requiring contingent capital;

(E)an evaluation of the effects of such requirement on the international competitiveness of companies subject to the requirement and the prospects for international coordination in establishing such requirement; and

(F)recommendations for implementing regulations.

(2)The Council shall submit a report to Congress regarding the study required by paragraph (1) not later than 2 years after July 21, 2010.

(3)(A)Subsequent to submitting a report to Congress under paragraph (2), the Council may make recommendations to the Board of Governors to require any nonbank financial company supervised by the Board of Governors and any bank holding company described in subsection (a) to maintain a minimum amount of contingent capital that is convertible to equity in times of financial stress.

(B)In making recommendations under this subsection, the Council shall consider—

(i)an appropriate transition period for implementation of a conversion under this subsection;

(ii)the factors described in subsection (b)(3);

(iii)capital requirements applicable to a nonbank financial company supervised by the Board of Governors or a bank holding company described in subsection (a), and subsidiaries thereof;

(iv)results of the study required by paragraph (1); and

(v)any other factor that the Council deems appropriate.

(d)(1)The Council may make recommendations to the Board of Governors concerning the requirement that each nonbank financial company supervised by the Board of Governors and each bank holding company described in subsection (a) report periodically to the Council, the Board of Governors, and the Corporation, the plan of such company for rapid and orderly resolution in the event of material financial distress or failure.

(2)The Council may make recommendations to the Board of Governors concerning the advisability of requiring each nonbank financial company supervised by the Board of Governors and bank holding company described in subsection (a) to report periodically to the Council, the Board of Governors, and the Corporation on—

(A)the nature and extent to which the company has credit exposure to other significant nonbank financial companies and significant bank holding companies; and

(B)the nature and extent to which other such significant nonbank financial companies and significant bank holding companies have credit exposure to that company.

(e)In order to limit the risks that the failure of any individual company could pose to nonbank financial companies supervised by the Board of Governors or bank holding companies described in subsection (a), the Council may make recommendations to the Board of Governors to prescribe standards to limit such risks, as set forth in section 5365 of this title.

(f)The Council may make recommendations to the Board of Governors to require periodic public disclosures by bank holding companies described in subsection (a) and by nonbank financial companies supervised by the Board of Governors, in order to support market evaluation of the risk profile, capital adequacy, and risk management capabilities thereof.

(g)The Council may make recommendations to the Board of Governors to require short-term debt limits to mitigate the risks that an over-accumulation of such debt could pose to bank holding companies described in subsection (a), nonbank financial companies supervised by the Board of Governors, or the financial system.

Notes & Related Subsidiaries

Editorial Notes

Amendments

2018—Subsec. (a)(2)(B). Pub. L. 115–174 substituted “the applicable threshold” for “$50,000,000,000”.

Statutory Notes and Related Subsidiaries

Effective Date

of 2018 AmendmentExcept as otherwise provided, amendment by Pub. L. 115–174 effective 18 months after May 24, 2018, see section 401(d) of Pub. L. 115–174, set out as a note under section 5365 of this title.

Construction

of 2018 AmendmentFor

Construction

of amendment by Pub. L. 115–174 as applied to certain foreign banking organizations, see section 401(g) of Pub. L. 115–174, set out as a note under section 5365 of this title.

§5325 Enhanced supervision and prudential standards for nonbank financial companies supervised by the Board of Governors and certain bank holding companies

Summary

Title 12, §5325

Notes & Related Subsidiaries

Editorial Notes

Amendments

Statutory Notes and Related Subsidiaries

Effective Date

Construction

Construction

Citations & Metadata