Five years after the passage of the Dodd-Frank act, we have a good idea of what’s working well and what’s not. In the latter category are several asset thresholds that determine which banks get extra regulatory scrutiny.
As noted in the May 20 editorial “Keep the line bright,” some regulators agree that the $50-billion threshold for being designated “systemically important” needs to be raised. But we suggest going beyond arbitrary numerical thresholds by giving regulators power to tailor supervision according to a variety of factors, including business model, activity, size and risk profile. Such an approach, which regulators are fully capable of implementing, would avoid the negative economic consequences of unsuitable and inefficient bank regulation. Sen. Richard Shelby (R-Ala.) introduced a bill, which passed the Senate Banking Committee on Thursday, that would move in this direction, as would bipartisan legislation introduced in the House by Rep. Blaine Luetkemeyer (R-Mo.) with 63 co-sponsors.
The current $50-billion threshold captures a lot of banks that, were they to fail, would come nowhere near to bringing down the financial system. Having to regulate them as if they would dilutes regulators’ attention to true systemic risks and threats.
Frank Keating, Washington
The writer is president and chief executive of the American Bankers Association.