Senate proposal would raise the SIFI threshold for BHCs | KPMG | US

Senate proposal would raise the SIFI threshold for BHCs

Senate proposal would raise the SIFI threshold for BHCs

The Senate Banking Committee reached a bi-partisan agreement to increase the SIFI threshold for BHCs from $50 billion to $250 billion.

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The final threshold is uncertain, as the agreement could be amended or otherwise changed as it makes its way through the legislative process. Nonetheless, it is highly likely that Congress will pass legislation to raise the SIFI threshold for BHCs.

Proposed SIFI Provision:

Last week, the Senate Banking Committee announced that it had reached a bi-partisan agreement on legislative proposals to reform the financial services regulatory framework. The Committee’s bill, titled the Economic Growth, Regulatory Relief and Consumer Protection Act, includes a wide-range of provisions that broadly address improving consumer protections and access to credit as well as “right-sizing” regulations. (The legislative text is available here.)

Notably, one provision proposes to raise the systemically important financial institution (SIFI) threshold for bank holding companies (BHCs) from $50 billion to $250 billion and exempt these entities from the Federal Reserve Board’s Enhanced Prudential Standards (EPS). In addition:

  • BHCs with total consolidated assets between $50 billion and $100 billion would be exempt from EPS as of the date of enactment.
  • BHCs with total consolidated assets between $100 billion and $250 billion would be exempt 18 months after enactment (the “effective date”), though the Federal Reserve would have the authority to exempt certain entities by order prior to the effective date.
  • The Federal Reserve would be required to conduct periodic stress tests of BHCs with total consolidated assets between $100 billion and $250 billion.
  • The Federal Reserve would have the authority to apply EPS to any BHCs with total consolidated assets of $100 billion or more to which the rules do not otherwise apply based on the entity’s capital structure, riskiness, complexity, financial activities, size, and other risk factors in order to prevent financial stability risks and promote safety and soundness.

The bill must still pass votes at the Committee level as well as the full Senate before advancing to additional votes in the House of Representatives and to the President to be signed into law. As such, the provisions could change. However, at least in the Senate, the bipartisan nature of the agreement makes it highly likely that the EPS threshold will be raised from $50 billion, although the actual number that is agreed upon could be different than the initial $250 billion.

In its recent banking report, the Department of the Treasury recommended amending the SIFI threshold “to more appropriately tailor” these standards to the risk profile of bank holding companies, but did not specify a new threshold amount. The Financial CHOICE Act, the regulatory relief bill that passed the House earlier this year, similarly did not address a specific increase in the threshold.

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