The House GOP heard Americans loud and clear: the asset threshold for being designated a Systemically Important Financial Institution is too high.
Wait, that wasn’t what the election was about?
Well, it might not have been a rallying cry from the public, but it probably was from the donors.
And, as such, the House passed the Systemic Risk Designation Improvement Act, its latest assault on Dodd-Frank.
If the Systemic Risk Designation Improvement Act improves anything, it’s the odds of greater systemic risk in the financial sector:
H.R. 6392 would scale back certain provisions of the Dodd-Frank Act that give federal financial regulators authority in regulating Systemically Important Financial Institutions (SIFIs) and would potentially exempt large regional banks from the type of oversight necessary to ensure the health and stability of our financial markets. The bill is yet another Republican attempt to roll back important Dodd-Frank regulations that were designed to prevent the type of risky financial practices that led to the near-collapse of our financial system just 8 years ago.
In reaction to the 2008 financial crisis, Title 1 of Dodd-Frank provides that any large bank with assets over $50 billion be automatically designated a SIFI by the Financial Stability Oversight Counsel (FSOC) to ensure that financial regulators oversee their activities. A significant finding in the aftermath of the 2008 financial collapse is that federal financial regulators did not use the authority available to them to monitor the health, safety, and risk management practices of large banks. Under Dodd-Frank, the Federal Reserve, as the primary regulator of bank holding companies, is required to examine any bank designated a SIFI for potential risk to the financial system and establish any appropriate regulatory standards. While Republicans argue the $50 billion threshold is arbitrary and imposes excessive restraints, they are in fact justified considering banks above this threshold were found to have engaged in reckless financial practices that significantly contributed to the 2008 Great Recession. To ensure that banks of this size are appropriately and not excessively regulated, Dodd-Frank provided the Federal Reserve ample discretion to tailor any enhanced regulations based on the size, complexity, and varying risk profile of the SIFI. For example, additional capital requirements only apply to banks with assets over $250 billion, and the toughest leverage requirements only apply to eight of the largest SIFIs that are designated as Global Systemically Important Banks (G-SIBs).
H.R. 6392 would completely repeal Dodd-Frank’s $50 billion asset threshold above which banks are automatically labeled SIFIs, and strictly limit automatic SIFI-designation to only the largest U.S. banks that have already been designated as G-SIBs subject to enhanced prudential standards. As of November 2015, only 8 of the 33 U.S. banks designated as SIFIs under Dodd-Frank carry the G-SIB label. All other bank holding companies would have to go through an extensive review process before being designated a SIFI subject to increased oversight by the FSOC, a lengthy and potential interminable case-by-case exercise.
It passed 254 to 161.
20 Democrats joined Republicans in voting for it:
Brad Ashford (NE-02)
Joyce Beatty (OH-03)
Sanford Bishop (GA-02)
Jim Cooper (TN-05)
Jim Costa (CA-16)
Henry Cuellar (TX-28)
John Delaney (MD-06)
Gene Green (TX-29)
Brian Higgins (NY-26)
Sheila Jackson Lee (TX-18)
Dan Lipinski (IL-03)
Gregory Meeks (NY-05)
Patrick Murphy (FL-18)
Donald Payne (NJ-10)
Scott Peters (CA-52)
Collin Peterson (MN-07)
David Scott (GA-13)
Terri Sewell (AL-07)
Kyrsten Sinema (AZ-09)
Albio Sires (NJ-08)