But left unaddressed was how those new regulations would apply to nonbank firms, such as
"They're clearly not ready to do the rule now," said
The issue is one of the biggest unanswered questions concerning the post-financial crisis regulatory system. Under the Dodd-Frank Act, the
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At its board meeting on Tuesday, the central bank postponed addressing the issue, instead giving itself broad flexibility on how to proceed. Officials said they might utilize two options. They could either draft a separate rule that will pertain strictly to nonbank financial companies or issue an order for each individual firm based on a particular threat the Fed may perceive.
The Fed could drill down further and opt to do several rules based on either specific industries or activities.
Many deemed the Fed's approach to the issue as appropriate given the fact only three nonbanks have been designated as systemically important financial institutions.
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With so many firms in different lines of business and various corporate structures, observers said regulators need more time to understand the different risks before drafting meaningful rules.
"I don't think they've got it all figured out yet," said
"It really does require additional thought," said Schwartz. "You just can't impose bank-like standards without giving significant thought."
Earlier this month, Fed Gov.
One of the stumbling blocks facing the Fed, however, is the Collins amendment — a provision in the Dodd-Frank Act that imposes a floor for capital requirements for all institutions.
"We are trying to tailor, as we best we can, the capital requirement to take account of A) the particular product that insurance companies offer that banks do not, and B) the different business model," said Tarullo, at the hearing.
Several lawmakers have already stoked fears that the Fed will apply prudential rules intended for banks on firms like insurance companies, harming them in the process.
Observers said that the Fed's decision to postpone how such rules will apply may indicate they are leaning toward regulating SIFIs on a case-by-case basis through orders and other supervisory actions.
"I don't think there's another approach," said Ireland. "If you tried to do it by rules, the rules would be so sketchy and limited you would still be doing most of it by order and might not as well be doing that right."
During the meeting, Fed Gov.
This story first appeared at American Banker.
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