On April 3, 2013, the Federal Reserve Board (“FRB”) approved a final rule (“Final Rule”) that establishes (1) definitions of the terms “significant nonbank financial company” (or, more commonly referred to as SIFIs or “systemically important financial institutions) and “significant bank holding company,” and (2) the requirements for determining when a company is “predominantly engaged in financial activities.”  These terms are relevant to various provisions of Title I of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Act”), including section 113, which authorizes the Financial Stability Oversight Council (“FSOC”) to designate SIFIs for supervision by the FRB.

Item 1

Under the Final Rule, the FRB has concluded that there is a sufficient basis for adopting a $50 billion asset threshold for purposes of defining “significant” nonbank financial companies and bank holding companies. The FRB has not included an inflation adjustment provision in the Final Rule because it determined that an inflation adjustment would add complexity and burden to the definition without any significant benefit in more accurately defining the relevant terms.  However, the FRB may consider amending the $50 billion threshold in the future if it determines that such reconsideration is appropriate.

Item 2

For purposes of Title I of the Act, a company is considered to be “predominantly engaged” in financial activities if either (1) annual gross revenues from financial activities (including subsidiary activities), as well as from the ownership or control of an insured depository institution, represent 85% or more of the consolidated annual gross revenues of the company or (2) the consolidated assets of the company and its subsidiaries related to financial activities, as well as related to the ownership or control of an insured depository institution, represent 85% or more of the consolidated assets of the company.

The Final Rule also enumerates types of “financial activities” for purposes of determining whether a company is predominantly engaged in financial activities under Title I.  This list includes the following insurance-related items:

  • insurance activities[1]
  • insurance company portfolio investments[2]
  • insurance agency and underwriting activities

The Final Rule will become effective on May 6, 2013.

To see a copy of the Final Rule, click here.

To see the FRB’s release on the Final Rule, click here.