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1.1 Establishment of the Oversight Council

1.1.1. What Entities Are Impacted and How?
Title I primarily affects two types of entities, (i) BHCs that have total consolidated assets of $50 billion or more and are closely interconnected with similar companies ("Large BHCs") and (ii) nonbanks that are predominantly engaged in financial activities and whose material financial distress would pose a threat to the stability of the U.S. financial system, as determined by the Oversight Council ("Significant Nonbanks"). Farm Credit institutions or entities regulated by the Farm Credit Administration are expressly excluded from being treated as a nonbank financial company and thus would not be subject to the provisions of Title I.

A nonbank "predominantly engaged in financial activities" means 85% or more of its gross revenues are derived from activities that are "financial in nature" for purposes of section 4(k) of the Bank Holding Company Act ("BHC Act") or from ownership or control of depository institutions or 85% or more of its assets are related to such activities or the ownership or control of such institutions. [§102(a)(6)]

The Oversight Council also will create the blueprint for the supervision of Large BHCs and Significant Nonbanks through the recommendations it makes regarding their prudential supervision. However, the supervision of such companies and any enforcement actions will rest with the Fed. The Oversight Council may also make recommendations to financial regulatory agencies in general to address systemic concerns.

1.1.2. What Is the Oversight Council and What Are Its Responsibilities?
The Oversight Council is established as of the date of enactment of the Act. Its purposes are to (i) identify risks to U.S. financial stability that could arise from the financial distress or failure of Large BHCs or Significant Nonbanks, (ii) promote market discipline by taking action to dispel expectations that the shareholders, creditors, or counterparties of such companies will be shielded from loss by the government in the event of such companies' failure, and (iii) respond to emerging threats to U.S. financial stability. [§ 112(a)]

1.1.2.1. Duties.
The Oversight Council will perform several duties related to identifying and responding to systemic threats to the U.S. financial system, including the following: (i) direct the information collection and analysis activities of the Office of Financial Research ("OFR"), a new Treasury Department ("Treasury") agency created by the Act; (ii) monitor the financial services marketplace; (iii) identify regulatory gaps; and (iv) make recommendations regarding new or heightened prudential standards to govern activities or practices that could create or increase risks of contagion. [§ 112(a)]

The Oversight Council will review and submit comments to the SEC and the Financial Accounting Standards Board ("FASB") on existing and proposed accounting principles, standards, and procedures in order to ensure that accounting rule-making bodies more seriously consider alternatives when developing accounting principles, standards and procedures.

1.1.2.2.Oversight Council Membership and Operations.
The Oversight Council consists of ten members: (i) Secretary of the Treasury ("Treasury Secretary"), who serves as chairperson; (ii) Chairman of the Fed; (iii) Comptroller of the Currency ("OCC"); (iv) Chairman of the Federal Deposit Insurance Corporation ("FDIC"); (v) Director of the Bureau of Consumer Financial Protection ("Bureau"); (vi) Chairman of the Securities and Exchange Commission ("SEC"); (vii) Chairperson of the Commodity Futures Trading Commission ("CFTC"); (viii) Director of the Federal Housing Finance Agency; (ix) the Chairman of the National Credit Union Administration; and (x) an individual with insurance industry expertise, appointed by the President to serve a six-year term.

1.1.2.3. Information Gathering by the Oversight Council and the Fed.
In order to mitigate the burden of complying with information requests, the Oversight Council, acting through the OFR, is required to coordinate with the primary state or Federal regulatory agency before requiring any Large BHC or Significant Nonbank to submit reports to the Oversight Council, and to rely whenever possible on information available from such agencies or the OFR. Similar consultation with home country supervisors must be undertaken before requiring a foreign BHC or nonbank to submit reports. However, whenever the Oversight Council is unable to determine based on available information whether the financial activities of a nonbank pose a threat to U.S. financial stability, the Oversight Council may request the Fed to conduct an examination of such company for the sole purpose of determining whether the company should be made subject to Fed supervision under the Act. [§ 112(d)]

1.1.3. Treatment of Certain TARP Recipients as Significant Nonbanks.
Any company that, as of January 1, 2010, was a BHC with total consolidated assets of $50 billion or more and participated in the Capital Purchase Program established under the Troubled Asset Relief Program ("TARP") authorized by the Emergency Economic Stabilization Act of 2008 and that ceases thereafter to be a BHC, will be treated as a Significant Nonbank regardless of whether a formal determination has been made. An affected company may appeal such treatment to the Oversight Council, which must issue a report on its proposed decision to Congress and then notify the company, which notification includes the basis for its final decision. In making its decision, the Oversight Council must consider whether the company meets the standards to be a Significant Nonbank. [§ 117]

1.1.4. Oversight Council Recommendations to the Fed Regarding Enhanced Supervision and Prudential Standards for Large BHCs and Significant Nonbanks.
The Oversight Council may recommend prudential standards and reporting and disclosure standards to the Fed for Large BHCs and Significant Nonbanks for the purpose of preventing or mitigating risks to U.S. financial stability. The Act identifies specific areas for the Oversight Council to consider for potential recommendations: (i) capital requirements, (ii) liquidity requirements, (iii) resolution plans ("living wills"), (iv) credit exposure requirements, (v) concentration limits, (vi) contingent capital requirements, (vii) enhanced public disclosures, (viii) short-term debt limits, and (ix) risk management requirements.

As part of this process, the Oversight Council is directed to conduct a study regarding the establishment of a contingent capital requirement (long-term hybrid debt that is subject to conversion to equity in times of financial stress) for Large BHCs and Significant Nonbanks. The study must be submitted to Congress within two years of enactment of the Act, after which the Oversight Council may make recommendations to the Fed regarding the imposition of contingent capital requirements.

1.1.5. Reporting Requirements.
The Oversight Council, acting through the OFR, may require Large BHCs and Significant Nonbanks, and any subsidiary thereof, to submit certified reports regarding their financial condition, risk management systems, transactions with their depository institution subsidiaries, and their potential to disrupt financial markets or affect U.S. financial stability. [§ 116]

1.1.6. Oversight Council Recommendations to Financial Regulatory Agencies Regarding Systemic Concerns.
The Oversight Council may issue recommendations to the primary financial regulatory agencies to apply new or heightened standards and safeguards, including any standards proposed for Large BHCs and Significant Nonbanks, to all BHCs and nonbanks within their jurisdiction, if the Oversight Council determines that the conduct of the financial activities or practices in question could create or increase risks of contagion of significant credit, liquidity, or other problems among BHCs, nonbanks, U.S. financial markets, or low-income, minority, or under-served communities. Such standards and safeguards may include prescribing how an activity or practice may be conducted or prohibiting such activity or practice altogether. Before making any recommendation, the Oversight Council must consult with the primary financial regulatory agencies and provide the public with notice and an opportunity for comment. Each primary financial regulatory agency must implement the Oversight Council's recommendation or adopt similar standards deemed acceptable by the Oversight Council, or it must explain in writing to the Oversight Council, not later than 90 days after receiving a recommendation, why it has determined not to follow it. The Oversight Council is required to report to Congress on any such recommendation and its implementation. [§ 120]

1.1.7. Oversight Council Study Regarding the Effects of Size and Complexity of Financial Institutions.
The Chairman of the Oversight Council is required to conduct a study of the economic impact of possible financial services regulations intended to reduce systemic risk. The study is to examine the costs and benefits of, among other things, limits on the size of BHCs and other large financial institutions. The Chairman is required to submit a report of any findings and determination made in carrying out the study within 180 day of enactment of the Act and thereafter no less than once every 5 years. [§ 123]