By Jeff Bater
Oct. 29 — A congressional budget deal does not derail Sen. Richard Shelby's (R-Ala.) dual-track approach to moving legislation that addresses systemic risk as well as the regulatory burden on banks, according to a Senate Republican aide.
The deal reached earlier in October between the White House and congressional Republicans notwithstanding, Shelby “is still looking at the appropriations process as a vehicle to move his regulatory relief bill,” the aide said in an e-mail.
Shelby, the chairman of the Senate Banking Committee, unveiled a draft of his bill (S. 1484) May 12. The bill establishes a $500 billion threshold for automatic designation of systemically important financial institutions (SIFIs) and sets up a framework in which the Federal Reserve and the Financial Stability Oversight Council (FSOC) would evaluate the size, interconnectedness, substitutability, cross-border activity, and complexity of banks with assets between $50 billion and $500 billion to determine whether they should be designated as SIFIs.
Shelby's package also includes relief for small banks, such as a provision for adjusting the Federal Deposit Insurance Act to increase the number of banks that qualify for an 18-month on-site examination cycle — as opposed to a 12-month cycle. Elements of the bill have traction in the House, which passed legislation (H.R. 1553) in early October by a vote of 411-23 that would lighten the regulatory burden for small banks by making more of those institutions eligible for a longer examination cycle.
The Banking Committee approved an amended version of S. 1484 along party lines later in May, and it was subsequently added to a Senate appropriations bill. Shelby characterized the addition as “a dual-track” approach for his regulatory relief package.
However, in a recent letter to the congressional leadership, key Democrats aired their strong objections to Republican efforts to use must-pass government funding legislation to repeal, undermine or delay financial reforms and consumer protections. “While we are opposed to the inclusion of all inappropriate and ideological policy riders to funding legislation, as the Ranking Members of the Senate Committee on Banking, Housing and Urban Affairs and the House Committee on Financial Services, we are specifically concerned about ones designed to repeal, undermine, or delay provisions of Wall Street reform,” Sen. Sherrod Brown (D-Ohio) and Rep. Maxine Waters (D-Calif.) wrote in the Oct. 22 letter.
An analyst, Jaret Seiberg of Guggenheim Securities, said he expects the budget deal will hurt efforts to raise the SIFI designation level for banks. “That is negative for regional banks, which are seeking relief from capital distribution limits, liquidity requirements, and other rules imposed on systemically important banks,” he wrote in an Oct. 27 market commentary.
During a markup scheduled for Nov. 3, the House Financial Services Committee will look at legislation that addresses systemic risk, H.R. 1309.
The bill would authorize the FSOC to subject a bank holding company to enhanced supervision and prudential standards by the Federal Reserve if the council makes a final determination that either material financial distress at the bank holding company, or the nature, scope, size, scale, concentration, interconnectedness or mix of its activities, could threaten the financial stability of the U.S.
The Systemic Risk Designation Improvement Act of 2015 was introduced in March by Rep. Blaine Luetkemeyer (R-Mo.) and has more than 100 sponsors, including some Democrats.
In a statement, William Moore, the executive director of the Regional Bank Coalition, expressed support for the House bill.
“Congressman Luetkemeyer's legislation would replace the automatic and arbitrary $50 billion total asset threshold currently used to designate banks as systemically important with a multi-factored test already used by the regulatory agencies for other purposes that measures the actual potential systemic risk a bank presents,” Moore said. “This criteria, focusing on complexity, global activity, size, interconnectedness, and substitutability, is widely accepted among regulators and academics as a more appropriate and more nuanced indication of whether a bank is systemically important than the $50 billion total asset threshold currently used.”
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