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NTU urges Representatives to vote “YES” on Bipartisan Legislation to Improve SIFI Designation Criteria

by Clark Packard / /

NTU urges all Representatives to vote “YES” on H.R. 6392, the “Systemic Risk Designation Improvement Act of 2016,” sponsored by Rep. Blaine Luetkemeyer. This bipartisan legislation will improve stability in the financial system.
 
Title I of Dodd-Frank created the Financial Stability Oversight Council (FSOC) composed of various financial regulators and tasked it with, among other things, designating banks and non-bank financial firms as Systemically Important Financial Institutions (SIFIs). Designation as a SIFI subjects institutions to heightened regulatory supervision. The sole standard by which FSOC designates bank holding companies as SIFIs is whether such bank holding companies have $50 billion in assets. This arbitrary measure does not accurately reflect whether such bank holding companies pose systemic risks to the financial system. 
 
H.R. 6392 would alter the criteria by which bank holding companies are designated as SIFIs to more accurately reflect the true risks they pose by considering their business activities. Specifically, the bill would take into consideration the asset size of a bank holding company, the interconnectedness of the institution, complexity, the global nature of the bank holding company, and the “extent of readily available substitutes or financial institution infrastructure,” among other criteria, to determine whether a bank holding company is a SIFI. This will give regulators more comprehensive and flexible criteria by which to judge the systemic risk posed by the institution.
 
NTU has been critical of Dodd-Frank and the SIFI designation process because it establishes a market expectation that any firm or bank receiving such designation is “Too Big to Fail” and would be rescued by the federal government in the event it failed. We have endorsed Chairman Hensarling’s Financial Choice Act, H.R. 5983, which would eliminate FSOC’s authority to designate institutions as SIFIs. While H.R. 5983 offers a more comprehensive solution, H.R. 6392 is a sensible approach to better gauging risk – rather than using one arbitrary criterion.

Roll call votes on H.R. 6392 will be included in our annual Rating of Congress and a “YES” vote will be considered the pro-taxpayer position.
 
If you have any questions, contact NTU Counsel and Government Affairs Manager Clark Packard at (703) 683-5700.