By Victoria Finkle, American Banker
WASHINGTON — The fight over the Dodd-Frank Act’s $50 billion threshold will determine whether some banks get a respite from tougher rules, but it may also shape how the industry and lawmakers think about threats to the financial system more broadly.
Regional banks are pushing to raise or remove the reform law’s hardline threshold for enhanced prudential standards, including stress tests, living wills and higher capital requirements, arguing that they’re not “systemically important” like the Wall Street megabanks. The debate raises fresh questions about the meaning of systemic importance and how that intersects with increased demands for oversight.
“What’s happened over the last five years is that the term SIFI has become interchangeable with being subject to the Federal Reserve prudential standards, whether you’re a bank or not,” said Aaron Klein, director of the Bipartisan Policy Center’s financial regulatory reform initiative.
The issue of how to apply the term “systemic importance” cropped at a recent Banking Committee hearing with financial regulators, when Daniel Tarullo, a governor at the Federal Reserve, observed that the term may have several meanings in different contexts.
“There are two ways you can think about it. One is systemic importance in the sense that this high-stress or failure on that particular firm might itself lead to a financial crisis — so that’s the systemic risk, too-big-to-fail concern that we’re thinking about from six, seven years ago,” he told lawmakers at the March 19 hearing.