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8.2 Prudential Standards

<< Title VIII Overview

8.2 Prudential Standards

The following links provide expanded analysis within this section:

8.2        Prudential Standards.

As a general matter, the Fed, by rule or order, will issue risk management standards for designated Utilities and designated Activities.  

The Fed may take into consideration international risk management standards and existing prudential requirements in setting standards.  These standards will govern: (i) the operations related to the payment, clearing, and settlement activities of designated Utilities; and (ii) the conduct of designated Activities by financial institutions. 

The CFTC and the SEC may each issue regulations containing risk management
standards, subject to override by the Fed and the
Oversight Council.

            The objectives and principles for the risk management standards established by regulation will be to: (i) promote robust risk management; (ii) promote safety and soundness; (iii) reduce systemic risk; and (iv) support the stability of the broader financial system. [§ 805]

8.2.1     Scope.  The risk management standards established by regulation may address areas including: (i) risk management policies and procedures; (ii) margin and collateral requirements; (iii) participant or counterparty default policies and procedures; (iii) the ability to complete timely clearing and settlement of financial transactions; and (iv) capital and financial resource requirements for designated Utilities.

8.2.2.    Thresholds for Standards.  It is important to note that prudential standards for the Activities conducted by financial institutions, may be subject to a threshold as to the level or significance of engagement in the of the Activity at which a financial institution will become subject to the standards in regard to that activity.  This provision gives the Fed significant authority to exempt a large portion of financial institutions from prudential standards with regard to a particular Activity.