If you’re a nonbank financial with more than $50 billion in assets and want to avoid being regulated by the Fed, your fate isn’t entirely in your own hands, it turns out:
Those companies would most likely fall under the newly proposed rules. In addition to applying only to financial companies holding at least $50 billion in assets, the rules would require companies to also meet one of several other characteristics.
These would include having $20 billion in debt, $3.5 billion in derivative liabilities, a 15-to-1 leverage ratio of total assets to total equity, short-term debt measuring 10 percent of total assets or credit-default swaps written against the company with at least $30 billion in notional value.
So to stay out from under the thumb of the Fed, you can de-lever, shed derivatives, and pay down short-term debt if you’d like, but if the CDS market takes a shine to you, you’re out of luck. Wonderful. . . . Why do I get a sense that at some point, that CDS provision is going to bite some poor company at the worst possible time? Meanwhile, if the speculative CDS market has served any practical purpose besides providing a low-cost way to destabilize the markets I’m at a loss to say what it is. . . .