A bill introduced in Congress by Rep. Blaine Luetkemeyer entitled the “Systemic Risk Designation Improvement Act of 2016” (H.R. 6392) aims to amend Dodd-Frank to change the criteria for labeling financial institutions as a systemically important risk, leading to reduced regulation for smaller banks. It passed the House by a vote of 254-161 on December 1, 2016, and is now in the Senate for a vote.
Dodd-Frank requires that the Federal Reserve closely monitor banks that have assets of $50 billion or more. H.R. 6392 amends Dodd-Frank to eliminate the $50 billion threshold in favor of a higher minimum asset level to determine whether or not a bank is “systemically important.” Financial institutions that carry this label are subjected to enhanced scrutiny.
In addition, H.R. 6392 would require that the Financial Stability Oversight Council employ a more comprehensive process to assess whether a bank’s holding company poses any risk to U.S. financial stability before labeling it as “systemically important.”
Supporters of the legislation say that these changes would improve regulators’ abilities to more accurately assess a financial institution’s actual risk rather than relying solely on asset size. Some of the factors the FSOC would consider if the bill passes include size, complexity, interconnectedness, cross-jurisdictional activity and available substitutes.
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