In the face of opposition from certain business groups, U.S. regulators are still struggling to streamline rules that will prevent larger financial institutions from causing another economic collapse.
Under the 2010 Dodd-Frank Act, regulatory agencies are required to identify institutions that are essential to the proper functioning of the financial system, as well as ways to ensure the health of those institutions, the Hill reports.
Institutions labeled “systemically important financial institutions” would be subject to increased oversight and regulation. Regulators may also require SIFI institutions to increase capital reserves in order to protect against changes in the financial market.
Some groups are pressuring regulators to ensure that the increased regulation will not impede the market.
“Any kind of designation is going to have a profound impact, so we want to make sure they do it in the best possible way with the least burden to capital markets,” Alice Joe, the executive director of the Chamber of Commerce’s Center for Capital Markets Competitiveness, said, according to the Hill. “There’s a huge, huge cost in becoming a designated SIFI.”
Reform advocates, however, argue that the regulations would not prevent another collapse.
“This is the section of the Dodd-Frank Act that gives federal regulators the authority to handle the problems in the shadow banking system, and they’re really not living up to that,” Mark Jalusic, the chief economist for Better Markets, said, the Hill reports.
Ultimately, the debate revolves around the Financial Stability Oversight Council, which is responsible for designating firms as SIFI institutions. The FSOC is currently focused on determining under which criteria a firm can be deemed “systemically significant.”
Banks that have more than $50 billion in assets are considered significant. For non-bank institutions, the FSOC is currently trying to devise criteria to make the SIFI designations. Last October, the FSOC proposed rules that would qualify a non-bank as a SIFI if they carry significant short-term debt or are largely leveraged.
The FSOC plans to implement the rule in a three-stage vetting process for financial firms, followed by two votes on the designation and time in between to allow the firm to contest the title of SIFI. Joe said that while the process will take time, if designations are to be made by the end of this year, the final rule would likely need to be out before summer.