VIEWPOINT: Two Sets of Standards, One Big Muddle for SIFIs

By Petrou, Karen Shaw | American Banker, June 7, 2011 | Go to article overview
Save to active project

VIEWPOINT: Two Sets of Standards, One Big Muddle for SIFIs

Petrou, Karen Shaw, American Banker

Byline: Karen Shaw Petrou

There will be two turning points this month for the new regulatory framework for systemically important financial institutions. First, global regulators will reveal criteria to define global SIFIs - the biggest of the big. And the U.S. will take yet another stab at our SIFI standards, issuing the third proposal on how to tell a SIFI from a run-of-the-mill big nonbank financial company.

As these standards take shape, there's growing danger that their sum total will be flat-out silly: global SIFIs judged by just how humongous they are while U.S. SIFI standards slap around bank holding companies with as little as $50 billion in assets and even small foreign-bank operations here if the parent back home crosses the $50 billion threshold.

The stakes here are very high. The global SIFI standards will cost covered firms first a punitive capital surcharge and then additional up-the-ante requirements. U.S. SIFI standards are set by Title I of the Dodd-Frank Act, meaning they are set in law and soon to come. The statute mandates an array of high-impact SIFI standards to be set by final rule no later than Jan. 21, 2012.

To be sure, these SIFI standards result from the manifest lapses that led to the financial crisis. The new rules seem to make sense in the abstract, but piled together, all of them create a crushing burden of complex, untested and cross-cutting rules with unknown implications that may well have unintended consequences. Thus, regulators should carefully calibrate the SIFI standards, with the U.S. taking particular care to require them only of institutions that genuinely pose real risk to the financial system, not just those that cross the arbitrary SIFI thresholds stipulated by Dodd-Frank and sure not to be used by any other nation or by global regulators.

The global rules for SIFIs are in the works at the Basel Committee on Banking Supervision and the Financial Stability Board, the parent organization not just for the Basel Committee, but also for international securities and insurance regulators. SIFI standards have emerged as a top priority, in part because global regulators feared that, if they didn't finalize them now, the sense of panic that sparked the current regulatory round would fade and, with it, the chance for any global accord on cross-border SIFIs.

As a result, global SIFI standards are set to be released later this month and then finalized in time for the G-20 summit in November. Along the way, the stability board will finally agree not just on what to dictate for SIFIs, but also on who they are so that the standards are - it hopes - uniformly applied in every jurisdiction in which a global SIFI sets up shop.

The first add-on global standard for global SIFIs will be a capital surcharge. Initially, regulators were divided on this, with some instead favoring a tax to reimburse home-country citizens for any future SIFI bailouts. The tax issue has been left to national jurisdiction and the focus - along with at least a preliminary consensus - is on capital.

The global SIFI surcharge here will be some form of higher requirement atop the Basel III capital standards - 3% is the working assumption.

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
Loading One moment ...
Project items
Cite this article

Cited article

Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

Cited article

VIEWPOINT: Two Sets of Standards, One Big Muddle for SIFIs


Text size Smaller Larger
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

While we understand printed pages are helpful to our users, this limitation is necessary to help protect our publishers' copyrighted material and prevent its unlawful distribution. We are sorry for any inconvenience.
Full screen

matching results for page

Cited passage

Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.

Are you sure you want to delete this highlight?