Senator Shelby Challenges $50 Billion Threshold for Determining Banks to be of Systemic Importance

U.S. Senator Richard Shelby (R-AL), questioned the rationale for deeming a bank to be systemically important if it has $50 billion or more in total assets. He stated that "under this automatic framework where there is no clear exit from designation, a bank has little incentive to reduce its level of systemic risk." In opening remarks before the Banking, Housing, and Urban Affairs Committee hearing on "Measuring the Systemic Importance of U.S. Bank Holding Companies," Senator Shelby stated that Dodd-Frank set up a process governed by a council of federal regulators to determine if non-bank financial institutions are systemically important. "As imperfect as this process is, there is no such process for banks," he said.

Shelby also addressed the recently finalized capital surcharge rule and stated that it incorporates a framework based on many factors, including "not only size, but interconnectedness, cross-jurisdictional activity, substitutability, and complexity." The Senator indicated that the determination of whether banks are systemically important should likewise be based on such a multi-factor test, rather than on a single measure, concluding that "improving such measures will allow our regulators to focus their resources on the most systemically important banks."

See: Chair Shelby's Statement on Measuring the Systemic Importance of U.S. Bank Holding Companies.