WASHINGTON (REUTERS) - The US Federal Reserve unveiled a final rule on Wednesday designed to prevent large financial firms from becoming so big that their failure could shake the core of the US financial market.
The final rule, required by the 2010 Dodd-Frank Wall Street reform law, prohibits banks and certain large financial firms from acquiring another company if that merger would cause their liabilities to exceed 10 per cent of the total consolidated liabilities for all financial firms.
The Fed said on Wednesday that its final rule is"substantially similar" to the one it proposed in May, but contains a few changes.
For instance, the final rule has an exemption that would permit firms to continue securitisation activities even if they have reached the limits set forth in the rule.
The final rule also prohibits a company from acquiring another company under "merchant banking authority" if it has reached the 10 per cent limit.
In addition, it spells out more details for how to properly calculate financial sector liabilities, among other things.
The rule is slated to take effect on Jan 1, 2015.
Wednesday's rule applies to banks and to large financial firms who are designated as "systemic" by the Financial Stability Oversight Council (FSOC), a federal government panel of regulators that polices for emerging market threats.
The FSOC has already designated General Electric's GE Capital, American International Group and Prudential Financial as systemic.
It has also proposed designating Metlife, although the company has hired a lawyer to fight the proposal.