There's a Better Way to Identify SIFIs Than Size: Office of Financial Research

By McKendry, Ian | American Banker, October 27, 2017 | Go to article overview

There's a Better Way to Identify SIFIs Than Size: Office of Financial Research


McKendry, Ian, American Banker


Byline: Ian McKendry

WASHINGTON -- The Dodd-Frank Act's $50 billion threshold for determining which banks are systemically important should be scrapped and replaced with an indicator test, according to a report issued Thursday by the Office of Financial Research.

Though the message was not new -- the industry has been pressing for just such a move in regulatory relief legislation being developed in the Senate -- the messenger was surprising. Though an arm of the Treasury Department, the independent Office of Financial Research has generally not weighed in pending political issues, favoring a more academic approach.

But the report was unequivocal that the current standard was insufficient for determining what institutions pose a risk to the broader economy.

"Our analysis indicates that a multifactor approach could replace the $50 billion asset-size threshold that some U.S. regulations use to identify U.S. banks that are not" considered globally systemic "but warrant enhanced regulation," wrote Richard Berner, director of the research agency, in a blogpost.

Regulators have divided firms over the $50 billion category into three tiers. Those with between $50 billion and $250 billion of assets are subject to additional requirements, including additional stress testing, the creation of resolutions plans and enhanced liquidity rules. Banks with more than $250 billion in assets are subject to even tougher standards requiring them to hold greater capital. Finally, the eight banks considered globally-systemic face more onerous regulatory requirements.

The OFR report, titled "Size Alone is Not Sufficient to Identify Systemically Important Banks," the research agency says that the test for which banks are considered globally systemic could be applied to U.S. institutions with more than $50 billion in assets in helping to determine which institutions are truly systemically important.

In addition to a bank's size, international regulators look at a bank's interconnectedness, substitutability or reliance on short-term funding, complexity of business model and cross-jurisdictional activity to determine which banks are globally systemic.

Berner said adapting that test for U.S. firms would be a better gauge of which banks above $50 billion warrant higher standards.

"Such an approach could identify a much smaller group of non-G-SIB banks for enhanced prudential standards," he wrote. "Relatively large but less-systemic U.S. institutions might no longer face regulatory costs disproportionate to their importance. Smaller banks that play unique roles in U.S. markets, are more complex, or rely on short-term wholesale funding could continue to face higher standards."

The research agency recommends some changes to the G-SIB test. First, it wants to better account for so-called "substitutability" risks "from banks that offer unique services that are central to the functioning of financial markets. …

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

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.
One moment ...
Default project is now your active project.
Project items
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Note: primary sources have slightly different requirements for citation. Please see these guidelines for more information.

Cited article

There's a Better Way to Identify SIFIs Than Size: Office of Financial Research
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
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?

Help
Full screen
Items saved from this article
  • Highlights & Notes
  • Citations
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    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.

    Buy instant access to save your work.

    Already a member? Log in now.

    Search by... Author
    Show... All Results Primary Sources Peer-reviewed

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.