Changes to the Regulatory Environment: Will the $50 Billion SIFI Threshold Change?

April 27 2018

On April 13th, 2018, the House of Representatives took the first step in repealing the Volcker Rule, which places heavy restrictions on the types of investing banks can take part in, with the passing of H.R. 4790 or the Volcker Rule Harmonization Act. In addition, Senate lawmakers introduced a proposal called the S. 2155 or the Economic Growth, Regulatory Relief, and Consumer Protection Act to raise the current $50 billion asset threshold to $250 billion to be categorized as a systemically important financial institution, also known as SIFI, allowing some of the larger community and regional banks more flexibility to innovate and expand.

Following the 2008 financial crisis, a threshold of $50 billion was set that subjected banks above that level to tougher capital and liquidity requirements. In addition, a $10 billion asset threshold was set that required banks above that level to conduct stress tests. Based on the data provided by the Federal Reserve as of June 30th, 2017, if the proposal goes through, this revision will bring the amount of SIFI banks down from 38 to somewhere between 10 to 15.

This proposal also faces a lot of opposition with opponents pointing out that raising the asset threshold to $250 billion would have excluded Countrywide, National City, and GMAC, all of which led to the federal government providing billions of dollars in capital assistance, asset guarantees, debt guarantees, and/or tax benefits to save the banking industry during the 2008 financial crisis.

With so much uncertainty and potential changes, what is the best way for mid-sized banks to navigate the complex regulatory environment? At BaseCap Analytics, we believe that mid-sized banks should aim to take a balanced course of action to address their compliance, risk management, and regulatory needs. The approach should involve proper execution planning in the event of legislative changes, without overinvesting in long-term, costly enterprise solutions.