The U.S. House of Representatives voted this week to pass the Systemic Risk Designation Improvement Act of 201 (H.R. 3312), would change the criteria for determining a systemically important financial institution.
The legislation, sponsored by Rep. Blaine Luetkemeyer (R-MO), passed by a vote of 288-130.
Currently, the designation is based on asset size alone. This bill removes the $50 billion asset threshold established in the Dodd-Frank Act to designate certain financial institutions as “systemically important financial institutions” (SIFIs). Instead, it subjects the institutions to a series of standards that more accurately measure systemic importance.
Specifically, the would require the Federal Reserve to review an institution’s size, interconnectedness, substitutability, global cross-jurisdictional activity, and complexity before determining whether that institution should be subject to the full SIFI regulatory regime.
“My legislation will remove the arbitrary approach taken and replace it with an analysis of the actual risk presented by a bank holding company to the financial system,” Luetkemeyer said. “It is time to take a pragmatic approach to the SIFI designation process and focus the Federal government’s resources on legitimate threats to the U.S. financial system. I thank my colleagues for their bipartisan support of this important legislation and urge the Senate to move it quickly to the President’s desk to be signed into law.”
Rep. Jeb Hensarling (R-TX), chairman of the House Financial Services Committee, said it does not make sense to subject regional and mid-sized banks to the same standards as a bank like JP Morgan Chase, which has $2.5 trillion in assets.
“Based on size alone, the $50 billion bank is just 2 percent of JP Morgan Chase’s size,” Hensarling said. “What does make sense is to base the regulation of these financial institutions on their actual risk profile rather than their asset size alone – which is exactly what Mr. Luetkemeyer’s strongly bipartisan bill will do.”