WASHINGTON – The House is expected to vote on a bill this week that would change the way banks are designated as systemically important and subjected to tougher regulatory requirements.
Under the Dodd-Frank Act, banks with more than $50 billion of assets are automatically considered systemically risky and must meet certain added capital and liquidity requirements as well as undertake stress tests run by the Federal Reserve Board.
Critics, and even regulators themselves, have said the $50 billion figure is an arbitrary one that captures firms that are not necessarily a threat to the financial system.
The bill, introduced by Rep. Blaine Luetkemeyer, R-Mo., would broaden the systemically important financial institution determination to include the complexity of the institution's business model and how interconnected it is with other institutions in addition to size.
"Assessing an institution through various factors, as opposed to asset size only, will allow for a more comprehensive assessment of risk to the overall financial system," Tim Pawlenty, the head of the Financial Services Roundtable, wrote in a letter to House Financial Services Committee leadership.
While the bill would remove the automatic systemic designation for banks with more than $50 billion in assets, the Financial Stability Oversight Council, which is made up of the federal financial regulators, could still make a determination of whether a bank poses a systemic risk.
The large money-center banks, including Bank of America, Bank of New York Mellon, Citi, Goldman Sachs, JPMorgan Chase, Morgan Stanley, State Street and Wells Fargo, would still be considered SIFIs.
While the bill is not expected to become law, it is expected to pass the House and will likely be a starting point for regulatory relief in the next Congress when President-elect Donald Trump takes office and Republicans have more legislative control.
"It won't pass this year," Jaret Seiberg, an analyst at Cowen and Company, wrote in a note to clients. "There is simply not enough time even if the GOP were willing to fight all out for the measure over the last days of this Congress."
But "it sets the stage for Congress next year to exempt most regional banks from Dodd-Frank stress testing," Seiberg wrote.
"This is clearly a positive for regional banks even if it does not pass this year," he said.
The House Rules Committee will consider the bill late Tuesday and then likely recommend it move forward for debate on the House floor.