Regulators Move Closer to Scrutinizing Nonbanks WASHINGTON - The Financial Stability Oversight Council, the country's top financial regulatory body, moved closer on Tuesday to increasing its oversight of nonbank financial institutions, like hedge funds, private equity firms and insurers. The 10-member council, headed by the Treasury secretary, Timothy F. Geithner, voted unanimously to adopt a rule that will designate some of those firms as "systemically important financial institutions," and put them under stronger regulatory supervision. The rule "is an important tool provided in Dodd-Frank for extending the perimeter of transparency, oversight and prudential supervision over parts of the financial system that can be a particularly important source of credit to the economy and potentially important source of risk," Mr. Geithner said during the 10-minute meeting. The oversight council will now begin a three-part process of determining which firms are subject to additional scrutiny from regulators. The Dodd-Frank financial regulatory reform law, which passed in the summer of 2010, automatically put banks with more than $50 billion in assets under stricter standards. Nonbank firms, like hedge funds, will be evaluated one by one. The first step is to "narrow the universe of nonbank financial companies to a smaller set" for closer analysis, the rule says. Regulators will initially examine all nonbank firms with more than $50 billion in assets. Those that cross any one of a number of other thresholds - holding more than $3.5 billion in derivative liabilities, $20 billion in debt, or having high leverage ratios, for instance - would move on to another round of assessment. In that second stage, the council will perform a "comprehensive analysis" of each firm, using public and regulatory data to give a fuller picture of its systemic importance and riskiness. Some firms will move onto a third stage, when the council will ask them for more information on their books. Then, the council will vote on each firm. If two-thirds of the regulators on the board, including the chairman, deem a firm "systemically important," it will be subject to new rules and oversight. Firms will have the chance to appeal the decision. The council left itself space to evaluate firms even if they do not meet the initial criteria for consideration. "The council does not believe that a determination decision can be reduced to a formula," it said in the rule, affirming its ability to analyze a firm "irrespective of whether such company meets the thresholds." The goal of the law is to better monitor big, risky firms that might fall through the regulatory cracks. In 2008, insurers like A.I.G. and nonbank firms like Lehman Brothers were instrumental in precipitating the financial crisis and credit squeeze. "There will not be any more large, complex, systemically critical firms that have no oversight," the Federal Reserve chairman, Ben S. Bernanke, who is a member of the council, said in a lecture at George Washington University at the end of March. Those gaps are getting closed. We won't have the situation we had before the crisis. The council has not yet enumerated exactly what additional oversight and standards systemically risky nonbank firms might face. "The council does not believe it is necessary or appropriate to postpone the adoption of this rule or the interpretive guidance until these other regulatory actions are completed," it said. Financial firms and business groups have lobbied hard against the new rule, arguing it should be narrowly defined to avoid burdening too many companies with additional regulatory requirements. But other groups do not believe that it goes far enough. "It's a very big disappointment," said Dennis M. Kelleher, the president of Better Markets, a nonprofit group that pushes for financial regulatory reform. They have proposed a rule that will almost certainly result in most of the shadow banking system not being regulated. Mr. Kelleher said that a number of firms that helped precipitate the crisis in 2008, like money market funds, would fail to be subject to the additional scrutiny as the rule is currently written. He said smaller but highly interconnected or otherwise important firms still pose a risk. "If you only worry about the big dogs," Mr. Kelleher said, "you're nonetheless going to get chewed to death by the other dogs." Companies that might be deemed systemically important include hedge funds like Paulson & Company, mutual fund companies like BlackRock, investment vehicles like Berkshire Hathaway and financiers like GE Capital. It is unclear when the nonbank financial firms will be designated as systemically important and formally subject to new regulation. Mr. Geithner said that the council will complete the first round of evaluations this year.