In a new report, the Bipartisan Policy Center asks, “did policymakers get post-crisis financial regulation right?” One section discusses the use of asset thresholds in determining regulations, writing:
“For example, the Federal Reserve’s Comprehensive Capital Assessment and Review and supervisory stress testing is required for all firms with at least $50 billion in assets. Such cutoffs provide an incentive for banks to artificially stay below a threshold or, once they have crossed it, to grow even larger to spread out the costs associated with ascending to a higher regulatory tier.g Most of the thresholds were chosen arbitrarily; the $50 billion threshold was defined by statute, without a formal analysis. A bank with $51 billion in assets does not abruptly become systemically risky in a way that a firm with $49 billion in assets is not.”
To view the full report, click here.