The Arbitrary and Inconsistent Non-Bank SIFI Designation Process

Chairman Wagner, Ranking Member Green, and members of the Subcommittee, thank you for the opportunity to appear today and share my views on the Financial Stability Oversight Council’s (FSOC) non-bank designation process. And thank you for your work on the report released earlier this month. I’ve found it useful in highlighting and explaining both the procedural and substantive problems with FSOC. FSOC’s mission is to identify, monitor, and address threats to America’s financial stability. Yet, the current process by which non-bank financial companies are designated as systemically important financial institutions (SIFIs) and the heightened oversight and regulation they fall subject to thereafter, is inherently flawed and risks losing the confidence of the public and policymakers and burdening the economy without any notable benefits.

In my testimony, I wish to make three main points:

• FSOC’s process, inconsistent or not, has prioritized designation and regulation of institutions, often arbitrarily, over the identification of activities that pose systemic threats and has done so in a fundamentally flawed manner. I applaud the Subcommittee for making a critical investigation into this process and all its implications.

• Designating a non-bank financial institution as a SIFI is consequential for both the institutions and the institutions’ customers. Those consequences include, but are not limited to, decreased international competitiveness for American companies in the international market and increased costs with decreased benefits for consumers.

• Thus far only insurance companies have been designated as non-bank SIFIs. A good argument can be made for removing FSOC’s authority to regulate those non-bank financial companies, as these companies are already being regulated at the state level. The increased burdens from FSOC’s oversight are unnecessary and provide no additional financial stability.

Click here to read the full testimony.