Senate bill’s higher SIFI threshold wouldn’t tie Fed’s hands, Powell testifies

Fed Chairman Powell reprised the Fed’s semiannual monetary policy report and discussed SIFI changes, pending action in the Senate, during Thursday’s hearing.

Federal Reserve Board Chairman Jerome H. (“Jay”) Powell told the Senate Banking Committee today that the increased thresholds for “systemically important financial institutions” (SIFIs) proposed in legislation presumed headed for Senate action next week would not prevent the Fed from addressing safety and soundness concerns regarding individual banks as it deems appropriate.

Currently, all banking institutions with more than $50 billion in assets are defined as SIFIs under the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank). The classification subjects these institutions to stricter regulation, capital requirements and supervision – including periodic stress testing and the need to create a “living will” for orderly wind-down.

The Economic Growth, Regulatory Relief, and Consumer Protection Act (S. 2155) – sponsored by committee Chairman Mike Crapo, R-Idaho, and backed by 25 cosponsors (12 Republicans, 12 Democrats and one Independent) – would exempt from SIFI designation those institutions with up to $100 billion, as long as they do not pose the same risks as globally systemic banks. Banks with assets between $100 billion and $250 billion would be presumed exempt 18 months after the bill’s enactment. However, the Fed reportedly would retain the authority to apply enhanced prudential standards to such institutions if it deemed that appropriate and would still be required to do stress testing.

During hearing Q&A, Powell responded to Crapo that “yes,” the Fed would still be required to perform supervisory stress testing of any banks with assets between $100 billion and $250 billion and to require the banks to retain capital sufficient to withstand a financial downturn. He also affirmed that the Fed would retain sufficient authority to supervise these institutions and that S. 2155 does not weaken oversight of the largest globally systemic banks.

Sen. Sherrod Brown, D-Ohio, and the panel’s ranking member, aired concern that the SIFI changes would ease the regulation of banking giants Deutsch Bank and Santander Bank, but Powell, responding later to Crapo, said those institutions would not be exempt from enhanced standards. He answered further that there’s no restriction in the bill on the Fed’s ability to ensure large institutions keep sufficient capital.

Thursday’s hearing was on the Fed’s semiannual monetary policy report. Powell’s testimony addresses that report and is similar to that delivered in a hearing Tuesday before the House Financial Services Committee.

Fed Chairman Powell’s testimony

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