The Financial Stability Oversight Council is backing down from its original plan to set criteria quickly for systemically important financial institutions, or SIFI, and name the institutions.

In a letter to Rep. Randy Neugebauer, R-Texas, on Wednesday, Deputy Assistant Treasury Secretary Amias M. Gerety confirmed that the council, comprised of the country's top financial regulators, would instead first propose more detailed criteria for designating systemically important firms and seeking comment. Only then would it move forward to designate any nonbank financial firms as "systemically important," a move that could subject them to oversight by the Federal Reserve and potentially higher capital requirements.

The decision could put off the initial selection of any nonbanks until next year and delay oversight of them even longer. All the rules being considered would allow nonbanks time to challenge any designation before it takes effect.

In March, Treasury Secretary Timothy Geithner, who chairs FSOC, had said the designations would occur this year.

Treasury officials including Geithner had indicated subsequently that the timetable was being revised and a new request for comment was forthcoming, but Gerety's letter to Neugebauer, chairman of the oversight panel of the House Financial Services Committee, provided the most details of what will happen next.

Banks, business groups and House Republicans had questioned the push to move forward quickly, especially after FSOC's first request for comment did little more than cite the authorizing language in the Dodd-Frank Act.

The business groups complained that moving quickly would have been unfair because there has been little transparency over the designation process and they would have too little time to determine whether they need to fight a designation.

Gerety in the letter said FSOC's upcoming proposal "will help enable nonbank financial companies to assess whether they are likely to be considered for designation." The Dodd-Frank law contained 10 criteria for determining whether a firm is systemically significant -- insufficient to determine which entities are covered. According to the law, regulators are supposed to consider size, interconnectedness, leverage, lack of substitutes for services, liquidity risk and existing regulatory scrutiny when deciding which firms are systemically important, but little guidance beyond that is provided.

Ken Bentsen, executive vice president for public policy and advocacy at the Securities Industry and Financial Markets Association, one of the groups which had questioned the speed of the early push, praised the delay.

"We are supportive of FSOC providing clarity as to what deems a financial institution to be a SIFI, and in particular the criteria used. We view the FSOC's response to Rep. Neugebauer to be a positive development consistent with the views we expressed in our comment letter to the council," he said.