Weekend Economists Ring in the Old, Wring Out the New: Dec. 30, 2011 to Jan. 2, 2012

[Demeter]

9. Treasury Proposes Fee Rule to Cover Financial Watchdog

http://online.wsj.com/article/SB10001424052970204632204577129113149409888.html?mod=dist_smartbrief

The U.S. Treasury issued a proposed rule Thursday for determining fees to be paid by large financial institutions to cover the cost of the recently established financial-stability watchdog and other expenses related to the Dodd-Frank regulatory overhaul. The Treasury plans to start collecting the semiannual fees in July 2012 from U.S. bank holding companies with at least $50 billion in total consolidated assets, foreign banks with at least that amount of assets in U.S. operations, as well as nonbank institutions that fall under the supervision of the Federal Reserve, according to the proposal. The Treasury expects the total amount of fees to top $100 million a year, though the actual amount of the initial assessment will depend on the amount of expenses included in the administration's fiscal 2013 budget proposal, as well as the amount of assets each firm holds on Dec. 31, 2011, according to the proposed rule.

The fees will cover the cost of the Federal Stability Oversight Council, Treasury's new financial research department, as well as expenses related to the implementation of the Federal Deposit Insurance Corp.'s orderly-liquidation authorities...The FDIC gained the authority to dismantle large, faltering financial firms in the Dodd-Frank law passed last summer in a bid to end bailouts of "too-big-to-fail" firms because the government lacked an orderly way to wind them down during the crisis. The fees won't go toward any particular bank, but will instead be used for expenses related to developing FDIC policies and procedures.

Based on June 30 figures, a $100 million assessment would mean that a company with just over $50 billion in assets would pay $280,000 for the year, while the largest assessed company—with about $2.3 trillion in assets—would pay an annual fee of about $12.5 million. The pool of assets that could be assessed was estimated at $18.1 trillion as of June 30, Treasury said. Regulators still haven't finished the process of determining which nonbank institutions—such as hedge funds, private-equity firms, insurance companies, specialty lenders and broker-dealers—would be considered systemically important enough to fall under the Fed's oversight. But the interagency Federal Stability Oversight Council has said a firm must have at least $50 billion in assets and surpass at least one additional threshold in terms of derivative liabilities, short-term debt or other measure.

The proposed rule, posted on the Federal Register at www.regulations.gov, will be open for public comment for 60 days. The Treasury plans to issue the final rule by the end of May 2012 and announce the assessment rate in June.