Should Risk Factors Other Than Size be Considered When Designating Banks as Systemically Important? (H.R. 3312)

What is H.R. 3312?

(Updated May 24, 2018)

This bill would eliminate the automatic designation of banks as systemically important based solely on asset size, and would instead require regulators to develop a formal process for designating systemically important financial institutions (SIFI) based on their specific risk profile. It would require regulators to also consider the bank’s interconnectedness, complexity, and the availability of readily available substitutes for the services it offers. These changes would take effect 18 months after this legislation's enactment.

Current law designates banks as systemically important if they have more than $50 billion in assets. Banks given the SIFI designation are subject to stricter regulatory standards.

Argument in favor

The financial services industry is extraordinarily complicated. As a result, the industry’s regulations should consider how interconnected a bank is when determining whether it is systemically important rather than simply labeling all banks with more than $50 billion in assets as such.

Argument opposed

There needs to be stricter regulation on big banks after the havoc they wreaked on America’s economy during the financial crisis. Banks that are bigger than $50 billion are systemically important, other factors need not be considered.

Impact

Financial institutions that could be considered as systemically important; and banking regulators.

Cost of H.R. 3312

A CBO cost estimate is unavailable.

Additional Info

In-Depth: Sponsoring Rep. Blaine Luetkemeyer (R-MO) introduced this bill to ensure that regulators consider more than just a financial institution’s size when designating them as systemically important:

“This legislation supports economic growth throughout the country because it will free commercial banks to make loans while allowing financial regulators the ability to apply enhanced standards on banks based on actual risk posed to the financial system -- rather than on arbitrary asset size alone. An inefficient regulatory system based on an arbitrary threshold can have real economic consequences. Last Congress, my colleagues recognized the importance of this issue when the House of Representatives passed similar legislation with bipartisan support. I look forward to ushering in a regulatory regime that more effectively and thoughtfully safeguards against risk.”

This legislation passed the House Financial Services Committee on a 47-12 vote and has the support of 69 bipartisan cosponsors, including 53 Republicans and 16 Democrats. During the last Congress the House passed a similar bill on a 254-161 vote, but the legislation stalled in the Senate.

Of Note: According to the Federal Reserve Board, there are 35 financial institutions in the U.S. that are larger than $50 billion in assets, all of which would be designated as systemically important because of their size under current law.

Media:

• Sponsoring Rep. Blaine Luetkemeyer (R-MO) Press Release
• Law360
• American Bankers Association (In Favor)
  
• Competitive Enterprise Institute (In Favor)