Treasury Report Takes Middle-Ground on SIFI Designation

Randy Benjenk is quoted in a Compliance Reporter article regarding a memo released by the Department of Treasury in response to a request from the President for review of the Financial Stability Oversight Council's financial institution designation process. According to Benjenk, the Treasury suggested improvements to FSOC’s processes, but stopped short of condemnation or calling for the process to be abolished. “It’s less extreme than it could have been,” says Benjenk. “It’s notable that the report doesn’t say the council should rescind its existing designations, or that Congress should eliminate FSOC’s designation authority. In fact, the report actually shows support for some of FSOCs actions apart from non-bank SIFI designations.”

Benjenk adds that the report had three main takeaways that will have substantial effect for the industry. “One is the report encouraging an activities-based or industry-wide approach to systemic risk regulation rather than focusing on SIFI designations. This approach could lead to fewer non-bank SIFI designations. Second, the report recommends more transparency between institutions and regulators during the designation process, which could lead to an institution de-risking itself to avoid the designation. Third, the report also has recommendations about more rigorous analysis, which is a direct result of the MetLife case. With the report being issued, you could now see the Justice Department stopping the appeal of the MetLife case and using this report as justification."