The Board of Governors of the Federal Reserve System (the Federal Reserve or the Board) issued a rule on April 3, 2013, providing criteria for determining whether a company is “predominantly engaged in financial activities” and defining the term “significant nonbank financial company.” The rule will be effective on May 6, 2013.

Under the Dodd-Frank Act (Dodd-Frank), a “nonbank financial company” is one that is “predominantly engaged in financial activities.” The Financial Stability Oversight Council (FSOC) is currently working to determine whether any “nonbanks financial companies,” including insurers, are SIFIs.

“Predominantly Engaged in Financial Activities”

Under the Federal Reserve’s rule, a company is “predominantly engaged in financial activities” if:

  • consolidated annual gross financial revenues in either of the company’s two most recently completed fiscal years represent 85 percent or more of its consolidated annual gross revenues (as determined in accordance with applicable accounting standards) in that fiscal year;
  • consolidated total financial assets as of the end of either of the company’s two most recently completed fiscal years represent 85 percent or more of its consolidated total assets (as determined in accordance with applicable accounting standards) as of the end of that fiscal year; or
  • the FSOC, with respect to the definition of a “nonbank financial company,” or the Board, with respect to the definition of a “significant nonbank financial company,” determines that:

- consolidated annual gross financial revenues of the company represent 85 percent or more of the its consolidated annual gross revenues; or
- consolidated total financial assets of the company represent 85 percent or more of the its consolidated total assets.

The appendix to the rule includes activities that are considered financial in nature. The appendix can be found starting on page 58.

“Significant Nonbank Financial Company”

The Federal Reserve’s rule defines a “significant nonbank financial company” as “any nonbank financial company supervised by the Board” or any other nonbank financial company that had $50 billion or more in total consolidated assets at the end of its most recently completed fiscal year. Under Dodd-Frank, SIFIs will be required to submit a report to the Federal Reserve, FSOC and the Federal Deposit Insurance Corporation on the nature and extent to which:

  • the SIFI has credit exposure to other significant nonbank financial companies and significant bank holding companies; and
  • other significant nonbank financial companies and significant bank holding companies have credit exposure to the SIFI.