Rep. Blaine Luetkemeyer (R-Mo.) introduced legislation this week that would base the regulation of financial institutions based on their risk rather than asset size.
“After many years in the banking and insurance businesses, I understand the importance of creating banking standards that appropriately account for risk and the varying structures of small, mid-size and large financial institutions,” Luetkemeyer said. “Only in Washington, D.C. could a regulatory system be created which treats interconnected, global institutions with complex lines of business the same as institutions focused on traditional, retail and commercial banking.”
The Systemic Risk Designation Improvement Act would enhance the criteria used to make systemically important financial institution—or SIFI—designations to ensure those that receive the designation are not only large but globally interconnected and complex. The legislation would also help to reduce the regulatory burden on retail and commercial banks.
Under Dodd-Frank, institutions with assets of $50 billion or more, regardless of business lines or complexity, are subject to enhanced regulatory scrutiny under the SIFI designation.
Luetkemeyer said that Dodd-Frank does not account for the differences between community banks, mid-size banks and large banks, which often have different business models, resulting in regulatory scrutiny of firms based on size rather than activity.