in determining what is a sifi and what is not? >> so section 113 lays out the rules for designating firms and section 165 describes the standards that will be applied to these firms. >> right. you know, it appears the prudential standards that are in 165 once you designate are banks -- are they not? >> yes, so the prudential standards in section 165 and 166 are bank centric and they are some of the traditional standards that we've had such as capital, liquidity and the requirement is to enhance those standards, make them higher standards for systematically important firms. >> you know, i noticed when you read 113, which is really the section that determines whether something's designated, it says nonfinancial activities of companies shall not be subject to the supervision of the board of governors and prudential standards of the board. would insurance activities be nonfinancial? >> insurance activities are considered financial. >> they are? okay. but the standards don't appear to apply to insurance -- there's no discussion of rese

would everyone agree that non-bank financials should be considered a sifi? and do you guys all think that's a reasonable area for us to look at? or does anyone on the panel sake no, we just want to look at banks? >> no, no, no. i totally agree that is necessary, that we catch these activities in the shadows. >> it could be done to exacting standards. be used sparingly but when it's appropriate spent i'm very skeptical of identifying -- because of the destruction's you can create in competition and incentives for safety and soundness. i wish more attention would be paid to looking at how we might do this without identifying specific a priest but instead looking over all at areas that could create systemic risk and having some sort of supervisory regime that could deal with that without labeling companies as systemically significant which ultimately will translate into backed by the states and founders of the federal government. >> i don't see a way to do what he is just described. ultimately, we need each of these institutions to be able to handle the claims

or sifis. instead of calling them systematically important financial institutions i think what we should call them is what the market calls them and that's too big to fail institutions. if you're honest about it, dodd-frank basically codified too big to fail in the law and simply changed the name over to sifis. and when you change the name, you really haven't changed anything about the characterization of them or you changed the substance of them. you haven't solved the

they may become sifis. and because we know that they may become -- or maybe they are sifis, is this not a means by which we can deal with them without making an attempt to prevent them from making bad business decisions? here is what i'm saying. we can't stop businesses from making bad business decisions. my belief is that that happens and that's part of the ebb and flow of doing business. but we can deal with the consequences of bad decisions. and is that what we're attempting to do here, mr. gibson, deal with the consequences of bad decisions by these mega businesses? >> yes. and one of the enhanced prudential standards that nonbank companies that are designated by the council will be subject to is enhanced capital requirements that will make sure that a buffer exists to cover unexpected losses of the type you're describing. >> and for he hedification procs foes those who would like, go back to the stock market crash. read about how the resistance that took place when we were trying to put fdic in place,

how much interconnectedness makes a firm a sifi? could you elaborate in this area. >> again, in the multiple rounds of public comment that we received, there's a desire to led to development of a three-stage process. the first stage is based on publicly-val indicated data and easily cal kulable metrics, in order to provide greater clarity that the public, about the types of endits that the council is going to want to examine further. the council is very clear that it wants to look in stages two to three, on a first by firm basis. a specific framework for it to do so. interconnecteds in is will of the things that the council will be looking at. >> one of six broad categories of frameworks, the others are size, substitutability, leverage. >> how did you find interconnectedness? >> there's the council does not believe after much analysis. that there's a single metric or formula that can measure interconnectedness. the council believes rather than have a one size fits all interconnected in. it's one of the issues that when it looks at a

there is no assignation for sifis within the dodd-frank bill. we leave those kind of threats in identification to the fcoc. and i believe the crisis we had a few years ago, the jpmorgan situation got to be avoided. but we got to make sure that any additional regulation for our financial institutions including both banks and nonbanks, will not stifle the growth of our economy. and the creation of american jobs. that the most important thing before us today. we've got to create jobs. we've got to get this economy better. we've got to also make sure that the forces that generate the capital, that test purse the capital. that lend and keep this economy going, disburse -- is not put in a straigtjacket. we've got to make sure that the abuses don't happen. all i'm simply saying is it's got to pass that delicate balance test, foremost, as economic growth, that not be five stifled. >> we're making great progress, jobless rate is coming down. let's move forward with jaundiced eye on this and do it correctly. >> thank you. mr. royce for one minute? >> more

auer, so designated nonbank sifis, how much weight will the fsoc give to existing regulators? perhaps you have an international nonbank financial institution and in their home country they have supervisory authority that's very clear. would the fed be likely that the fed would be designated or less likely? >> both in the framework that the council lays out in its rule and guidance stages two and three, the council does plan to take into account existing regulatory scrutiny, whether that scrutiny is domestic or foreign, whether at the conso d consolidated level or legal entity level. that would all be factors that would lead into the council's ultimate determination about whether or not that firm poses a threat to financial stability. >> mr. fwibson, you said earlier that you have the authority, the fed has the authority to tailor standards as appropriate to nonfinancial companies. now, isn't this unchartered territory for the fed? >> we have the authority to tailor the standards for nonbank financial companies. commercial companies would not be subject to the nonbank. so there

role before it begins designating nonbank firms with sifis. >> what's interesting is while there's a lot of discussion of the process, there's also a discussion that they're looking at 50 different companies. we have a bank centric model. they should start to look at whether or not there are unique characteristics to look at. >> how optimistic are you that enhanced supervision of individual companies will reduce the likelihood of any future financial crisis? >> i'm not optimistic about that given the historical record. i think it's difficult to anticipate what's likely to happen and what the source of risks may be. in the near teerm, it's likely to be heightened scrutiny and reduction in the likelihood of excess risk taking. over time as merms tend to fade, i think it's likely we will be an environment where the risks will be very difficult to identify and control. >> would you agree that looking at individual companies is a systemic risk for us? >> i think it's preferable to troo to look at activities and you can look at companies involved in that those activities. looking at indivi

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and i said to him, are you going to be considered one of these systemically important institutions, sifi, which would create a whole new regular oversight panel watching energy. and he said we don't know. we are not sure because the rules are still being written. so of course if you're in issues, you're going to say well, i'm not sure who i'm actually answering to. i'm not sure how many agencies are overseeing the. i'm not sure if i can be considered systemically important, a systemically important financial institution. and so i'm going to hold off with any expanding but i'm going to hold off hiring. i'm going to hold off allocating significant amounts of capital in terms of investment, in r&d, et cetera, until i have a clearer idea of where we are. so we are in disputed right now of waiting for dodd-frank to be, to be implemented at a time when companies are sitting on a record amount of cash they could be putting that money to work in the economy. but they are not because of the sort of uncertainties and unknowns out there. we need to really have the rules clearly stated. we need comp