Magazine article American Banker

Financial Utilities Are First to Get 'Systemic' Label

Magazine article American Banker

Financial Utilities Are First to Get 'Systemic' Label

Article excerpt

Byline: Donna Borak

WASHINGTON a U.S. regulators on Wednesday formally designated the first batch of 'systemically important' firms that will fall under new regulatory oversight mandated by the Dodd-Frank Act.

The Financial Stability Oversight Council, headed by Treasury Secretary Tim Geithner, voted to include eight financial-market utilities in the new regime.

The eight firms are: The Clearing House Payments Company LLC, CLS Bank International, Chicago Mercantile Exchange Inc., The Depository Trust Company, Fixed Income Clearing Corp., ICE Clear Credit LLC, National Securities Clearing Corp, and The Options Clearing Corp.

"These critical market infrastructure entities will be subject to heightened risk management standards," Geithner said in remarks prepared for the public portion of FSOC's meeting.

An FSOC rule outlines the criteria for selecting which financial-market utilities are systemically important. Organizations covered by the rule include central securities depositories and interbank payment systems. Regulators used a two-stage process to decide whether certain companies that facilitate clearing transactions are systemically important, which led to the designations.

Firms essentially had to meet four criteria, including a set monetary value of transactions processed by a firm; exposure to counterparties; relationships or interdependence with other FMUs; and the effect a firm's failure would have on the broader financial system. The council has discretion to consider other factors as well. …

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