Fed's Yellen Open to 'Modest' Increase in SIFI Designation Thresold

        By Victoria McGrane
        Federal Reserve Chairwoman Janet Yellen said Thursday that she would support a "modest increase" in the asset-size threshold at which banks are hit with tougher rules and regulatory scrutiny.
        "I would be open to a modest increase in the threshold," Ms. Yellen said during her appearance before the Senate Banking Committee, associating herself with earlier comments made by Fed governor Daniel Tarullo , the central bank's point man on regulatory matters.
        The way the 2010 Dodd-Frank law is written now, all banks with at least $50 billion in assets are automatically come under the Fed's thumb and qualify for tougher capital, liquidity and other rules. The requirements also include participating in the Fed's annual "stress test" exercise and also writing so-called annual "living wills" that show how they can safely go through bankruptcy without tanking the broader financial system.
        "It does look from our experience that the costs exceed the benefits" for some of the smaller banks above the $50 billion threshold, Ms. Yellen said. Mr. Tarullo has previously said that the Fed can't really tailor the stress tests to fit a bank's size and riskiness the same way they can adapt capital and other rules to a bank's relative riskiness.
        Her support for any change, however, would depend on the Fed retaining the discretion to impose stress testing and other requirements on banks below the new threshold if the Fed deems them a big enough risk to the financial system, she said.
        Ms. Yellen's endorsement comes at a critical time because Senate lawmakers are locked in a debate on whether and how to change the $50 billion threshold. Senate Banking Chairman Richard Shelby (R., Ala.) has introduced a wide-ranging financial regulatory bill that would raise the automatic threshold to $500 billion, but allow regulators--guided by criteria such as size, international risk and complexity--whether banks between $50 billion and $500 billion should face tougher rules.
        Some Democrats such as Sen. Sherrod Brown of Ohio, the Banking panel's top Democrat, say they're open to adjusting the threshold though they don't like Mr. Shelby's approach and are wary of striking deals with Republicans intent on rolling abck other parts of Dodd-Frank Democrats like. Other Democrats like Sen. Elizabeth Warren (D., Mass.) are adamantly opposed to raising the threshold, arguing that Dodd-Frank gives the Fed plenty of discretion to adjust rules to relative riskiness of banks.
        (END) Dow Jones Newswires

        July 16, 2015 16:26 ET (20:26 GMT)

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