Dodd-Frank Act - Title 1: Financial Stability (Part 4)
Systemically Important Companies: The Federal Reserve must conduct annual stress tests for all systemically important companies under at least 3 scenarios – baseline, adverse and severely adverse. The Federal Reserve must require each systemically important company to modify its living will based on the results of the analysis. The Federal Reserve will also publish a summary of the results of the stress tests.
Financial Companies with $10 Billion or More in Assets: All financial companies with $10 billion or more in assets that are regulated by a primary Federal financial regulatory agency must conduct annual internal stress tests, also under at least 3 scenarios – baseline, adverse and severely adverse – and publish a summary of the results as required by implementing regulations.
The Volcker Rule prohibits proprietary trading and certain fund activities by bank holding companies and their affiliates and imposes enhanced capital and other quantitative limits on such activities by systemically important nonbank financial companies, including systemically important hedge funds.
Safe Harbor: The Federal Reserve, on behalf of and in consultation with the Council, must set forth criteria for exempting “certain types or classes” of U.S. or foreign nonbank financial companies from enhanced Federal Reserve supervision, taking into account the same criteria used in systemic importance designations. It is unknown to what extent this will be used or how the “types and classes” will be drawn.
The Office of Financial Research (OFR)
In an unheralded section, the Act adds a new self-funded, largely independent Office of Financial Research with the power to gather vast amounts of information from financial market participants and to affirmative vote of affirmative vote of the Treasury Secretary the Treasury Secretary required standardization of financial information to be reported to the OFR and other regulators.
The OFR has broad information gathering authority backed by subpoena power, and all data it collects is affirmative vote of the Treasury Secretary affirmative vote of the Treasury Secretary subject to the Freedom of Information Act.
Institutional Structure: The OFR is located inside of the Treasury Department, but its Director is appointed to a 6-year term by the President, with the advice and consent of the Senate. The Director has a nonvoting seat on the Council.
Funding: The OFR sets its own budget and funds it with fees on large banks and non-bank financial companies supervised by the Federal Reserve.
Purpose and Duties. The OFR’s purpose is to support the member agencies by, among others:
- Collecting data on behalf of the Council and providing data to the Council and Council- member agencies
- Standardizing the types and formats of data reported and collected;
- Performing applied research and essential long-term research;
- Developing tools for risk measurement and monitoring;
- Making the results of the activities of the OFR available to financial regulatory agencies; and
- Assisting Council-member agencies in determining the types and formats of data they are authorized by the Act to collect.
The OFR has to maintain data confidentiality. The published data must be easily accessible to the public.