For the largest U.S. financial firms, nondeposit liabilities today are highly correlated with the systemic risk measures used at the Federal Reserve Board to measure interconnectedness and complexity for purposes of evaluating the financial stability effects of mergers.
Another attraction of this form of proposal is that, even as it places constraints on the potential size and composition of a firm’s balance sheet, it allows relative flexibility to the firm in meeting that constraint, particularly when compared with proposals for prohibitions on commercial bank affiliations with other financial firms.