Under the 2010 Dodd-Frank Act, financial institutions with at least $50 billion in assets are automatically deemed “systemically important financial institutions” — or SIFIs — that carry the risk of toppling the U.S. financial system. The law further extends authority to regulators to decide which non-bank firms pose a similar threat, Fox Business reports.
“We understand that there are some non-bank companies for which the bank-like standards that we’ve proposed would likely be a bad fit,” Michael Gibson, the director of the Federal Reserve’s department of banking supervision and regulation, said, according to Fox Business. “We have committed to looking at that when those companies are designated and doing what we can to tailor the standards.”
A panel of regulators finished laying out the three step process last month that will be used to identify non-bank SIFIs. The panel is expected to make those designations, some of which will include asset managers, hedge funds and insurers, by the end of the year. Gibson also said that the Fed will carefully examine the compliance period necessary for each institution.
Some lawmakers expressed concern that the rigid new rules could overburden insurance companies, which they see as less risky than banks. President William Wheeler of MetLife Inc., a U.S. and Latin American insurance company, said that his company does not threaten the financial system, adding that assigning the designation of SIFI to large insurers “would force them to raise the price of the products they offer, reduce the amount of risk they take on or stop offering certain products altogether,” according to Fox Business.
Lance Auer, a deputy assistant to the U.S. Treasury’s secretary for financial institutions, said, that the goal of the 2010 financial reforms is to make those designations regardless of legal structure.
“If a firm does pose such a threat, regardless of its activities, it ought to be designated and subject to heightened standards so that all firms that could pose such a threat are treated equally,” Auer said, Fox Business reports.