House Republicans draw bead on Dodd-Frank ‘too big to fail’ plan

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By Pete Schroeder | WASHINGTON

WASHINGTON Congressional Republicans are taking
aim at the regulatory process through which some financial
institutions become subject to heightened regulation because
they are deemed too big to fail.

In a report released on Tuesday, Republican staff members of
the House of Representatives’ Financial Services Committee said
the current process for identifying systemically important
financial institutions (SIFIs) was “arbitrary and inconsistent”
and confusing to banks, insurance companies and other financial
firms.

The report will be used by committee Republicans, including
Chairman Jeb Hensarling of Texas, as they move to overhaul the
Dodd-Frank financial reform law that set up the review process.
Hensarling has been a vocal critic of the designation process in
the past.

The Financial Stability Oversight Council – made up of the
heads of the U.S. financial regulatory agencies and run by the
Treasury secretary – labels some financial companies as “systemically important.” Those are the ones that face
heightened capital requirements from the Federal Reserve and
other regulators.

On Thursday, the council is set to review the designation
process as it holds its first meeting as part of the Trump
administration, with new Treasury Secretary Steven Mnuchin now
overseeing the panel.

A spokesman from the Treasury Department did not respond to
a request for comment for this story.

The report asserts that the FSOC has ignored its own rules
and guidance and has been inconsistent in how it assesses
various firms. As a result, some were tested on one set of
standards, while others were treated differently, leading to an
opaque and confusing process.

The FSOC’s most potent power is “SIFI” designation, which it
has used to subject nonbank financial firms such as MetLife and Prudential to stringent Federal Reserve regulations.
Large banks such as Goldman Sachs and Wells Fargo & Co also are designated as SIFIs, though not via the same
FSOC process.

FSOC’s designation power has come under fire in the past,
MetLife challenged the government following its designation as a
SIFI in 2014. A federal district court ruled in 2016 that the
government’s designation process did not pass muster. The
Treasury Department under then-President Barack Obama had
appealed the ruling, which is now pending before an appeals
court.

Republican staff on the committee reviewed internal FSOC
documents that had not been made public and interviewed several
FSOC officials in compiling the report.



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