After a strong performance in the midterm election, the Republicans now control both the Senate and the House of Representatives. What should the Republicans do with this control over Congress? Bank holding companies and financial institutions might have an idea or three.
In an op-ed piece published in The Wall Street Journal yesterday, Paul H. Kupiec called for Congress to quickly enact three reforms in order to reduce stifling regulation and to help spur economic growth. Those proposed reforms are, as follows:
1. "Raise the trigger for mandatory, enhanced prudential standards and Federal Reserve oversight for bank holding companies to $250 billion." The current trigger is simply too low. Bank holding companies with only $50 billion in consolidated assets should not be burdened with the costs of compliance with regulations, disruptive testing by regulators, and living will requirements. Raising the trigger threshold would allow regulators to focus on the bank holding companies which might actually disrupt the economy in the event of failure, rather than smaller bank holding companies that would likely not cause any significant disruption in the event of failure.
2. "Remove the Financial Stability Oversight Council's power to designate a nonbank financial firm as a 'systemically important financial institution (SIFI)'—which subjects them to heightened supervision by the Federal Reserve Board of Governors—and rescind any existing SIFI designations." Such a designation is far too significant for the subject institution to allow the government to escape absolute transparency about the process and criteria leading to a SIFI designation. According to the WSJ, "[t]he process is intentionally opaque to conceal the fact that designations are based on weakly defensible assumptions and hypothetical arguments about the alleged dangers these nonbank institutions would pose to the financial system were they to fail—arguments and assumptions that would not survive scrutiny if they were made public." The Financial Stability Oversight Council's largely unfettered and unreviewable discretion in making SIFI designations gives it license to intervene in and interfere with a business without any showing that the business's failure might cause a significant disruption to the financial system.
3. Instead of requiring large bank holding companies to submit "living wills" that outline the institution's plan for rapid and orderly bankruptcy in the event of failure, living wills should focus on eliminating the weakness in the FDIC bank resolution process. The WSJ piece argues that a living will should outline a plan to break up a large failing bank into multiple pieces and facilitate the process for doing so. While it might be prudent to require large institutions to create such a breakup plan, I wonder whether all institutions currently subjected to Dodd-Frank need to create such a plan. Perhaps my concerns could be addressed by simply raising the trigger level, as mentioned in number 1 above.
This would be a good start to correcting some of the shortcomings of Dodd-Frank. In my opinion, the American people elected Republicans in 2014 partly because they are tired of overreach by the federal government and the federal government's interference with business. It is time for Republicans to listen to the voice of the American people and free up the economy to grow and prosper.
For further information visit Waller's Banking Law Blog
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
