A more thorough explanation:

Definition: Title VIII is a part of the Dodd-Frank Act that provides a framework for assessing the systemic risk associated with financial institutions and financial market utilities involved in clearing activities for financial transactions. The Title grants authority to several government agencies to work together to promulgate rules and standards of operation, enforce those rules, and generally help manage the systemic risk of these clearing entities and other financial market utilities.

Example: When a financial transaction occurs, financial market utilities (FMUs) are responsible for finalizing the transaction by clearing transactions and settling the exchange of payment and securities between financial institutions. For example, when you buy a stock, the FMU ensures that the seller receives payment and the buyer receives the stock. Efficient clearing processes are necessary to ensure that at the end of each trading day, all transactions are accounted for and netted to determine the standing of all parties in the market.

Explanation: The financial downturn in 2008 exposed inefficiencies in the clearing process for major financial institutions that could destabilize the economy. Therefore, Title VIII was implemented to mitigate systemic risk by establishing standards for efficient clearing processes, giving the Board of Governors more supervisory authority, and strengthening systemically important FMUs and other institutions that perform clearing activities.

Example: Title VIII applies to any financial market utilities (FMUs) and other financial institutions that engage in clearing activities that the Financial Stability Oversight Council (FSOC) designates as “systematically important.” For example, the FSOC may designate a large bank or a clearinghouse as systematically important if its failure could have a significant impact on the financial system.

Explanation: Title VIII provides for a multi-agency rulemaking and supervising system involving the FSOC, Board of Governors, FDIC, CFTC, and SEC. The Board of Governors, with consultation and participation from the CFTC and FDIC, has the power to prescribe the standards that all covered FMUs must meet. These standards can control risk management procedures, margin and collateral requirements, participant default policies, timely completion of clearing and settlement activities, and capital requirements.

Example: To help enhance the operations of the FMUs, Title VIII allows banking institutions to open banking accounts for designated FMUs. However, the same section severely curtails the power of those banks to extend loans to the FMUs.

Explanation: The Board of Governors has the ability to exempt or modify the requirements for capital reserves that would apply under § 19 of the Federal Reserve Act. As a part of the investigations of FMUs, the Board of Governors and other agencies have the power to collect reports, records, and other information. Before an organization is designated as a covered FMU, agencies can demand any information necessary to evaluate the FMU’s systemic importance. After designation, the agencies can collect any information regarding the FMUs or other financial institution’s clearing and settlement processes, or information used to assess compliance with the rules promulgated under the Title.

Explanation: The future impact of Title VIII is still unclear. While the Title grants straightforward powers, the implementation of the Title will determine how broad the new powers of the Board of Governors are. For example, the Title does not provide guidance as to what constitutes a “systemically important” financial institution or FMU, or what standards will actually be promulgated for clearing operations.