The new administration has promised reduced regulation for the financial industry, and they began moving toward that goal by voting to amend a section of Dodd-Frank. The U.S. House of Representatives passed H.R. 6392, the Systemic Risk Designation Improvement Act of 2016, by a vote of 254 to 161, earlier this month. The bill is now in the U.S. Senate for consideration.
H.R. 6392 would change the way that Dodd-Frank determines that bank holding companies (BHCs) should be subject to enhanced supervision and prudential standards by the Federal Reserve if the BHCs experience material financial distress that could threaten the stability of the entire U.S financial system, i.e. too big to fail. The current process makes BHCs with $50 billion or more in consolidated assets automatically subject to the enhanced supervision and prudential standards from the Fed; H.R. 6392 calls for the Financial Stability Oversight Council (FSOC), an agency created by Dodd-Frank, to evaluate BHCs for heightened oversight by using “an indicator-based measurement approach established by the Basel Committee on Banking Supervision to determine systemic importance, which considers each bank holding company's size, interconnectedness, available substitutes, global cross-jurisdictional activity, and complexity.”
The bill was introduced into the House on November 22 by Rep. Blaine Luetkemeyer (R-Missouri), who is the Chairman of the Housing and Insurance Subcommittee of the House Financial Services Committee.
“The House passed legislation that would protect U.S. taxpayers from actual risk posed to the financial system. Decisions on what institutions are deemed systemically important should be based not on size alone, but also on activity and other factors that actually demonstrate systemic risk,” Luetkemeyer said. “The bottom line is that the current SIFI (systemically important financial institution) designation process is arbitrary and subjects banks with $50 billion or more in assets to the same standards as trillion dollar global SIFIs. This should not be a one-size-fits-all mold.”
The vote wasn’t strictly along party lines, like nearly all bills previously introduced to amend parts of Dodd-Frank—though all 161 nay votes were Democrats, 20 Democrats still voted in favor of the bill along with 234 Republicans.
One Representative who voted nay on H.R. 6392 was Maxine Waters (D-California), who was recently re-elected to a second term as Ranking Member of the House Financial Services Committee.
“H.R. 6392 would repeal Dodd-Frank’s $50 billion threshold, above which banks are subject to closer regulatory scrutiny, and prevent the Federal Reserve Board from regulating these banks,” Waters said. “Instead, it would hand over that responsibility to the Financial Stability Oversight Council, or FSOC. In order to regulate the banks, the FSOC would have to go through a byzantine and litigious process of designation, which takes two to four years to complete. Even if a potential Treasury Secretary [Steven] Mnuchin decided to regulate his former employer, by the time he got around to it, the damage would likely already be done.”
Click here for an overview of H.R. 6392.
Click here to view the complete voting results for the bill.