Regulators gear up to make clearinghouse SIFI designations

Timothy Geithner

U.S. regulators are planning to assign the designation of “systemically important financial institution” — or SIFI — to some swaps clearinghouses.

Under the 2010 Dodd-Frank Act, clearinghouses are required to process a majority of swaps. The designations by the Financial Stability Oversight Council would be the first for financial institutions other than banks that are seen as a risk to the U.S. financial system, according to the San Francisco Chronicle.

“The big clearinghouses are providing the freeway on which these financial products can trade,” Mark Williams, a finance instructor at Boston University and a former Federal Reserve examiner, said, the San Francisco Chronicle reports. “The regulators are saying, ‘We need to understand what sort of activities are on it, and we need to control the speed limit on this freeway.’”

The FSOC is currently in the process of assigning SIFI designations to non-bank institutions. Treasury Secretary Timothy Geithner said that the designations are expected to come before the end of the year. U.S. bank-holding firms with more than $50 billion in assets are automatically assigned a SIFI designation.

Last year, the FSOC finalized a rule that outlines how the council would determine the need for increased oversight of clearinghouses. A two-thirds vote and the FSOC chairman’s support are required to make a SIFI designation, according to the San Francisco Chronicle.

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