WASHINGTON U.S. regulators will propose criteria on Tuesday for deciding which market players other than banks, such as hedge funds, could threaten the financial system and require greater scrutiny by the Federal Reserve.
The Financial Stability Oversight Council, created to safeguard the financial system after the 2007-09 credit crisis and holding just its third meeting, is due to tackle major aspects of how last year's Dodd-Frank financial reform law should be implemented.
The council will also issue a study recommending how to put into practice the so-called Volcker rule, which bans banks from trading with their own capital for profit in securities and other financial instruments.
Led by U.S. Treasury Secretary Timothy Geithner, the panel that includes representatives from the Fed, the Securities and Exchange Commission and other agencies, is due to begin meeting at 1:45 p.m. EST (1845 GMT).
Insurers, mutual funds and private equity firms are also among the types of non-bank institutions that could be deemed important enough to warrant greater oversight.
Under the Dodd-Frank act, the council is asked to consider a host of criteria including the institution's leverage, off-balance sheet exposure and relationships with other significant financial firms.
Industry groups for non-bank firms have argued in comment letters to the council that they do not pose a risk.
Wall Street's lobby group, the Securities Industry and Financial Markets Association, has urged regulators not to take a one-size-fits-all approach to the Volcker rule on proprietary trading.
Nevertheless, major U.S. banks, such as JPMorgan Chase & Co and Morgan Stanley, have already started reorganizing their lucrative proprietary trading businesses.
An update of mortgage servicing and foreclosure problems is also on the council's agenda. Banks, including Bank of America, were accused last year of taking shortcuts in
foreclosure proceedings, including inadequate examination of supporting documents.
Later on Tuesday, the Federal Deposit Insurance Corp will meet to consider proposals for curbing pay practices deemed too risky, another aspect of the Dodd-Frank law.
The FDIC will also hammer out final details on how creditors will be treated if the government seizes a large, failing financial firm, a part of the new law meant to address the issue of too-big-to-fail institutions.
(Reporting by Dave Clarke and Rachelle Younglai; Editing by Tim Dobbyn, Dave Zimmerman)