The U.S. House of Representatives on Thursday passed a bipartisan bill to more accurately reflect potential risks that financial institutions could pose to the economy.
The Systemic Risk Designation Improvement Act would replace an arbitrary threshold from the Dodd-Frank financial reform bill that regulators use to designate systemically important financial institutions. The House voted to approve the bill by a vote of 254-161.
One of the authors of the original reform bill, former Congressman Barney Frank (D-MA), admitted in testimony to the House Financial Services Committee in 2014 that the threshold was arbitrary and expressed his support for adjusting it.
Backers of the bill said it would more accurately reflect the true risks financial institutions pose by considering their business activities. Prior to designating an institution as “systemically important,” regulators would take into consideration the asset size of a bank holding company, the interconnectedness of the institution and its complexity.
“So what we’re trying to do here today with this bipartisan bill is try to provide a solution, try to fix a genuinely recognized mistake in Dodd-Frank,” said Rep. Jeb Hensarling (R-TX). “And what those who oppose this bill are trying to do is to preserve that mistake in the law. I urge us to correct this Dodd-Frank mistake.”