In order to comply with the Statutory Pay-As-You-Go Act, the Dodd-Frank Act establishes a financial crisis assessment regime, in Title XVI, with an attendant fund housed in Treasury. The Financial Stability Oversight Council must impose special assessments on a range of financial companies and hedge funds, which will be collected by the FDIC. The assessments must collect, in the aggregate, the lesser of $19 billion and the product of one and one-third and the amount necessary to fully offset the net deficit effects of the Dodd-Frank Act up and through September 30, 2020, with the amount to be determined by OMB.
The assessments will be imposed on financial companies with $50 billion of more of consolidated assets and hedge funds with $10 billion or more of assets under management. In consultation with the SEC, the Council will define hedge funds for purposes of the financial crisis assessment regime.
In making the special assessments, the Council must establish a risk matrix that takes into account, among other things, the need to satisfy the fund’s statutory amounts, the extent of the company’s leverage, the extent and nature of the company’s off-balance sheet exposures and transactions and relationships with financial companies. The risk matrix must also account for the company’s importance as a source of credit for households, businesses, and state and local governments and as a source of liquidity for the financial system, as well as the company’s importance as a source of credit for low-income, minority, or underserved communities and the impact the failure of such company would have on the availability of credit in some communities.
In order to achieve equitable treatment in assessments, in establishing the special assessment system, the Council must consider differences among financial companies based on complexity of operations or organization, interconnectedness, size, direct or indirect activities, and any other risk-related factors appropriate to ensure that the assessments charged take into account the risk posed to the financial system by particular classes of financial companies.
The Council may require companies to make available information to be used in determining the financial company’s assessments and verifying the accuracy of the information and for overall determination of the proper risk-based assessments. In order to mitigate the burden on financial firms, the Council must, to the fullest extent possible, accept reports that the financial company has already provided to state and federal regulators and SROs, as well as externally audited financial statements and other publicly reported information. Federal regulators can make on-site inspections of a financial company’s books and records to carry out the purposes of the information gathering.
There is established in the Treasury a separate fund, the Financial Crisis Special Assessment Fund to be funded by assessments deposited from FDIC collections, which are to be considered fund assets and only fund assets, which may not be consolidated with any other funds within the Treasury. Fund assets can only be invested in US obligations issued directly to the fund and they must have suitable maturities and pay suitable interest rates. The fund cannot be used in connection with the liquidation of any failed firm under Title II of the Dodd-Frank Act, which is an orderly liquidation regime in which the firm goes out of business. Similarly, the fund cannot be used in connection with any financial stabilization action taken under the authority of the Dodd-Frank Act.