Should the Process of Designating Financial Firms as “Systemically Important” be More Transparent? (H.R. 4061)
Do you support or oppose this bill?
What is H.R. 4061?
(Updated February 7, 2019)
This bill would change the procedures federal regulators use when determining which non-bank financial institutions should be designated as systemically important financial institutions (SIFIs) by the Financial Stability Oversight Council (FSOC) (such a determination leads to enhanced regulation by the Federal Reserve). The FSOC would be required to reevaluate, both periodically and annually, its SIFI determinations of non-bank financial firms that are supervised by the Federal Reserve. It would also have to provide firms with an opportunity to provide the FSOC with written materials during the initial evaluation, an opportunity to meet with FSOC to discuss the analysis, and disclose the information used in its analysis.
Every five years the FSOC would required to study the impact of its SIFI determinations on nonbank financial institutions and whether those determinations have the intended result of improving domestic financial stability.
Argument in favor
This bipartisan, common sense bill would address the shortcomings of the process used by the Financial Stability Oversight Council to designate non-bank financial institutions as “systemically important” and give firms a chance to respond.
Argument opposed
This bill would bog down the Financial Stability Oversight Council and its process of designating large, non-bank financial institutions as “systemically important” — putting the financial sector at risk of another crash.
Impact
Nonbank financial institutions designated as systemically important; the FSOC; and the Federal Reserve.
Cost of H.R. 4061
The CBO estimates that enacting this bill would increase deficits by $34 million over the 2018-2027 period.
Additional Info
In-Depth: Sponsoring Rep. Dennis Ross (R-FL) introduced this bill to make the process of designating non-bank financial institutions as systemically important more transparent:
“After 8 years, if we don’t take steps to address the obvious shortcomings of the FSOC, like the nonbank designation process, the regulator intended to protect financial stability could very well become a liability. The American Action Forum has found that additional capital requirements resulting from a SIFI designation could cost American retirees at least $100,000 in potential savings over the lifetime of their investments. That’s why the reforms included in H.R. 4061 are critical to the more than 90 million investors who rely on the services of asset management firms to achieve their most important financial goals. Companies must have the chance to de-risk before the FSOC can saddle their customers with such extraordinary losses… This bill demonstrates that there can be broad, bipartisan support for increased transparency of the FSOC designation process.”
Some Democrats opposed this bill in committee and explained their dissent in its committee report:
“H.R. 4061 is an attempt to prevent the Financial Stability Oversight Council (FSOC) from doing its statutorily-required job of preventing another financial crisis by bogging it and its designation process down in endless analysis and litigation. Congress created the FSOC when it passed the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) for the purpose of identifying and responding to risks to financial stability, as well as eliminating expectations the government will shield market participants from losses. Congress specifically granted the FSOC authority to determine that a U.S. nonbank financial company should be supervised by the Federal Reserve and subject to enhanced prudential standards if financial distress at, or the activities of the company, would pose a threat to U.S. financial stability.”
This legislation passed the House Financial Services Committee on a 45-10 vote and has the support of 57 bipartisan cosponsors, including 29 Democrats and 28 Republicans.
Media:
Summary by Eric Revell
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