H.R.6392, Systemic Risk Designation Improvement Act of 2016

H.R. 6392

Systemic Risk Designation Improvement Act of 2016

Date
November 30, 2016 (114th Congress, 2nd Session)

Staff Contact
John Huston

Floor Situation

On­­­­ Wednesday, November 30, 2016, the House will likely consider H.R. 6392, the Systemic Risk Designation Improvement Act of 2016, under a structured rule. H.R. 6392 was introduced on November 22, 2016, by Rep. Blaine Luetkemeyer (R-MO) and was referred to the Committee on Financial Services.

Bill Summary

H.R. 6392 requires the Financial Stability Oversight Council (FSOC) to use an indicator-based measurement approach to determine the risk a bank holding company could pose to U.S. financial stability before designating such institutions as systemically important financial institutions (SIFIs) and consequently subjecting them to enhanced supervision and prudential standards by the Federal Reserve. Under the indicator-based approach, a bank holding company will be measured on five operational indicators: size, interconnectedness, complexity, cross-jurisdictional activity, and available substitutes. Under current law, bank holding companies with $50 billion or more in total consolidated assets are automatically designated as SIFIs.

Background

The Financial Stability Oversight Council (FSOC) was created by the Dodd-Frank Wall Street Reform and Consumer Protection Act, which authorized them “to identify risks to the financial stability of the United States that could arise from the material financial distress or failure, or ongoing activities, of large, interconnected bank holding companies (BHCs) or nonbank financial companies, or that could arise outside the financial services marketplace; [and] to respond to emerging threats to the stability of the United States financial system.”[1] This authority allows the FSOC to designate non-bank institutions as SIFIs, and subject them to increased supervision and regulation by the Federal Reserve.

The Dodd-Frank Act also requires the Federal Reserve to apply enhanced prudential standards to BHCs with total consolidated assets of $50 billion or more. The enhanced prudential standards established by the Federal Reserve must be more stringent than those standards applicable to other bank holding companies. [2]  Examples of these enhanced prudential standards include capital risk management requirements, stress testing requirements, capital planning requirements, liquidity standards, and resolution planning, or “living will,” requirements.

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[1] 12 U.S.C. 5322
[2] 12 U.S.C. 5365(a)(1)(A).

Cost

A Congressional Budget Office (CBO) estimate for this bill is currently unavailable. However, according to the Committee, CBO has preliminarily indicated that enacting H.R. 6392 would result in no net effect on the deficit over the 2017-2026 period.

Amendments

  1. Warren Davidson (R-OH)—This amendment prohibits the use of international standards not specifically provided in the bill.

Additional Information

For questions or further information please contact John Huston with the House Republican Policy Committee by email or at 6-5539.