House Committee on Financial Services Holds Hearing Regarding Dodd-Frank SIFI Designation
The House Financial Services Subcommittee on Financial Institutions and Consumer Credit ("Subcommittee") held a hearing that examined how and why bank holding companies are designated as "systemically important financial institutions" ("SIFIs") under Dodd-Frank.
The hearing is the first in a series of three hearings that evaluate how Dodd-Frank has impacted the financial regulatory landscape in the five years since it has been enacted.
Several significant criticisms were raised by witnesses. These include:
- Dodd-Frank requires the Federal Reserve Board to apply enhanced prudential standards to bank holding companies with total consolidated assets of $50 billion or more. This has created a de facto designation of these institutions as SIFIs.
- By designating certain firms as SIFIs, Dodd-Frank codifies "too big to fail" and continues the taxpayer-funded Wall Street bailouts by providing assurance of a federal backstop in the event of a financial crisis.
- Quoting former Dallas Federal Reserve Bank President Richard Fisher: "as soon as a financial institution is designated systemically important . . . it is viewed by the market as being the first to be saved by the first responders in a financial crisis. SIFIs occupy a privileged position in the financial system."
- The manner in which the Dodd-Frank Act designates bank holding companies as systemically important is arbitrary.
The following witnesses testified at the hearing:
- Mr. Harris Simmons, Chairman and Chief Executive Officer, Zions Bancorporation (written testimony);
- Dr. James Barth, Professor of Finance, Auburn University (written testimony);
- Dr. Paul Kupiec, Resident Fellow, American Enterprise Institute (written testimony);
- Mr. Satish Kini, Partner, Debevoise Plimpton LLP (written testimony); and
- Dr. Simon Johnson, Ronald A. Kurtz Professor of Entrepreneurship, Massachusetts Institute of Technology (written testimony).
See: Subcommittee Summary of Hearing; Committee Memorandum; Archived Webcast of Hearing; Subcommittee Hearing Page.Related news: House Financial Services Committee Announces Three Hearings Regarding Dodd-Frank (with Lofchie Comment) (July 6, 2015).