Discuss new regulations under the U.S. Dodd-Frank Act and Basel III to reduce the risk of very large non-bank financial institutions as well as large financial services firm.

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The Answer is New regulations under the U.S. Dodd-Frank Act of 2010 and under Basel III have been established to reduce the risk of very large non-bank financial institutions, as well as extremely large financial services firms. Under Dodd-Frank, the Financial Oversight Council (FSOC) was established and is required to supervise and regulate non-bank SIFS (systematically important financial institutions) that have systemic risk because of their size, interconnectedness, leverage, liquidity, risk and maturity mismatch, as well as lack of a substitute and lack of existing regulation. Evaluation criteria initially include: (1) if they have consolidated assets greater than $50 billion; (2) Credit Default Swaps (CDS) outstanding that are greater than $30 billion; (3) Net derivative liabilities greater than $3.5 billion; (4) Total debt outstanding greater than $20 billion; (5) A leverage ratio greater than 15 to 1; and (6) a short-term debt ratio greater than 10 percent. A company meeting these thresholds is subject to further tests to see if it is systematic. Even if a non-bank is not given a SIFS designation, it may still be under greater scrutiny by other regulators including the Consumer Financial Protection Bureau or state financial regulators as it gets larger, and all non-banks are subject to the Truth in Lending Act (TILA) and other consumer protection acts. There has also been concern over non-banks with large amounts of short-term wholesale funding, such as tri-party repos, with proposals to limit this type of liquidity risk.

Discuss New Regulations Under the U