SIFI Process Questioned By House GOP

 WASHINGTON — The Republican leadership of the House Financial Services Committee is asking the Financial Stability Oversight Council (FSOC) for detailed information on the process used to designate non-banks as systemically important financial institutions (SIFIs).

The letter said the request for data was prompted by the “marked lack of transparency” about how the FSOC decides to designate an institution, as well as the fact that none of the three institutions that have been designated by the FSOC as SIFI has been undesignated so far.

Treasury Secretary Jacob Lew will respond in due course to the letter, a department spokesman said.

The panel seeks non-public records that outline the FSOC’s decisions to designate an institution as a SIFI, as well as the reasons why certain other financial institutions have not been designated.

The letter said that the GOP leadership finds the current lack of transparency “troubling.”

The letter was signed by Rep. Jeb Hensarling, R-Texas, chairman of the panel, as well as all five of the committee’s subcommittees.

AIG, Prudential and GE Capital have been designated as SIFI. In addition, MetLife has been designated, but is challenging that designation in court.

At the same time, General Electric is in the process of reducing its investment in financial services, and has stated that it is seeking to sell off GE Capital assets and therefore will at some point seek to get GE Capital undesignated.

The letter noted that the FSOC has moved to make its designation process more transparent, but that the Republican members of the committee “remain concerned that these limited changes do not cure the serious deficiencies in the SIFI designation process.”

The letter argues that the FSOC’s “public explanations for its determinations have been largely superficial and lacking in analytical rigor, making it difficult for the public and the firms designated as SIFIs to understand how the statutory criteria outlined in the Dodd-Frank Act have been applied in individual cases.”

It also argues that the FSOC has not made any recommendations to the Federal Reserve Board regarding the prudential standards that should be used in evaluating the financial health of SIFIs.

The letter is part of a Republican initiative to hamstring the ability of federal regulators to oversee insurers. It is being done at the request of such firms as MetLife, as well as other institutions that fear they could be designated, such as State Farm, USAA or Allstate.

The first substantive effort in that regard was reporting out along party lines of legislation imposing higher standards regarding federal regulation of insurers by the Senate Banking Committee May 21.

However, that bill is given long odds of passage. Its chief sponsor, Sen. Richard Shelby, R-Ala., chairman of the Senate Banking Committee, has asked Democrats on the committee to work with him on compromise legislation.

However, the Obama administration has made clear it opposes such initiatives.

In comments last week at an event dealing with the administration’s proposal to impose a new fiduciary standard on sale of investment products into retirement accounts, Jeffrey Zients, director of National Economic Council, said, “The president will not accept legislation that unravels Wall Street reform.”

“Shelby pushed through a partisan bill designed to roll back Wall Street reform,” Zients said. He added that, “His goal here is clear, to weaken oversight over some of the largest financial institutions and tie one of the financial watchdogs (the FSOC) in knots.”

Washington Analysis, which advises institutional investors, said that, ultimately, it expects a narrow bill to be enacted that provides regulatory relief for community banks and credit unions and raises the threshold for SIFI designation to $100 billion, “though negotiations will likely play out over the course of the rest of this year.”

InsuranceNewsNet Washington Bureau Chief Arthur D. Postal has covered regulatory and legislative issues for more than 30 years. He can be reached at [email protected].

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InsuranceNewsNet Washington Bureau Chief Arthur D. Postal has covered regulatory and legislative issues for more than 30 years. He can be reached at [email protected].