Mnuchin: Bank ‘Systemic Risk’ Label Should Start at $250 Billion

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By Jeff Bater

Treasury Secretary Steven Mnuchin told House lawmakers the asset threshold that marks banks as systemically important financial institutions should be raised to at least $250 billion, and that he wants to address the lingering issue “quickly.”

The remarks on the so-called SIFI limit by Mnuchin in questioning at a House Financial Services Committee hearing July 27. The Treasury Department last month released a report recommending raising the threshold, currently set at $50 billion by the Dodd-Frank Act, without specifying a dollar figure.

While questioning Mnuchin, Rep. Jeb Hensarling (R-Texas), the committee’s chairman, noted the recommendation contained in the June Treasury report, and said it appears changes can be made without legislation. He asked Mnuchin to suggest a number to which the asset level could be elevated.

A Substantial Hike

”I think that it should be raised substantially, at least to $250 billion or $300 billion,” Mnuchin said. “And I would go further, saying that simple, uncomplex banks, the regulators should be able to exempt above that.”

The Treasury secretary also referred to bipartisan discussions on raising the SIFI limit that were held before Trump was elected. “I would hope that those conversations continue, and that this is something that we could accomplish quickly,” Mnuchin said.

Bipartisan legislation introduced in the House earlier in July would overhaul the process used to manage systemic risk. The legislation by Rep. Blaine Luetkemeyer (R-Mo.) would undo the Dodd-Frank requirement that all banks with more than $50 billion in assets are automatically considered a SIFI.

Luetkemeyer said the bill (H.R. 3312) would give the Fed the ability to apply enhanced standards on banks based on actual risk posed to the financial system — rather than on arbitrary asset size alone. Those factors include a bank’s size, interconnectedness, uniqueness, global presence, and complexity.

Tailoring Regulation

The idea of tailoring regulation to the character of a financial institution — rather than being based strictly on its size — was supported by Trump’s pick to head bank supervision at the Fed at his confirmation hearing July 27.

Randy Quarles was questioned about asset thresholds used for regulatory purposes during his appearance before the Senate Banking Committee, and said it is appropriate to recognize the different levels of risk of an institution.

“I do think we should look very carefully at tailoring capital regulation and other types of regulation to the particular character of the institutions, and that includes size and includes other aspects,” Quarles told senators.

In his prepared remarks for the hearing, Quarles said “some refinements will undoubtedly be in order” for post-crisis bank regulatory policy but gave no specifics.

Under questioning, however, he said he would want transparency to be a theme of Fed regulatory activities if he is confirmed.

Quarles referred to a lack of transparency surrounding a key part of the Fed’s bank stress tests, the Comprehensive Capital Analysis and Review (CCAR).

“I do think the Federal Reserve can look at being more transparent about those activities and can do it in a way that does not in any way reduce the effectiveness of those tests,” he said.

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