Report to Congress on Study of a Contingent Capital Requirement for Certain Nonbank Financial Companies and Bank Holding Companies, FSOC (Dodd-Frank Study)

The Dodd-Frank Act requires FSOC to submit a report to Congress regarding a study on the feasibility, benefits, costs, and structure of a contingent capital requirement for nonbank financial companies supervised by the Federal Reserve Board and for large, interconnected bank holding companies (BHCs). This report addresses statutory mandates for the study through a review of the types and structures of contingent capital instruments and consideration of the potential benefits from and drawbacks of the use of contingent capital, including its potential to enhance the safety and soundness of nonbank financial companies supervised by the Federal Reserve and large, interconnected BHCs. FSOC recommends that contingent capital instruments remain an area for continued private sector innovation, and encourages the Federal Reserve and other financial regulators to continue to study the advantages and disadvantages of including contingent capital and bail-in instruments in their regulatory capital frameworks.  (In summary, the reports takes--at best--a mixed view of contingent capital.  On the downside, it notes the possibility for significant dilution of existing shareholders.   On the other hand, it did discuss the fact that a number of jurisdictions and institutions are considering encouraging, or using, contingent capital). 

Cross References: Dodd-Frank Section 115; Dodd-Frank Studies table.

View study in full here (links externally to Dept. of Treasury website).