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A planned legislative proposal would eliminate the controversial “too big to fail” designation for nonbank financial institutions such as insurers.
A Feb. 6 House Financial Services Committee memo outlines proposed changes to the Financial Choice Act, which was introduced in Congress last year and is expected to be reintroduced during the current Congressional session.
The memo from Chairman Jeb Hensarling, R-Texas, outlines plans to eliminate or revise several features of the Dodd-Frank Wall Street Reform and Consumer Protection Act in the revised legislation, including removing the remaining nonbank systemically important financial institutions references in repealing a provision that establishes the process to quickly and efficiently liquidate a large, complex financial company that is close to failing.
The Financial Stability Oversight Council currently has the power to designate financial institutions as SIFIs subject to heightened capital requirements and reporting rules. In July 2013, the council voted to designate American International Group Inc. and Norwalk, Connecticut-based General Electric Capital Corp. Inc. as SIFIs, with Newark, New Jersey-based Prudential Financial Inc. also designated as a SIFI in September 2013.
In December 2014, the council voted to designate New York-based MetLife Inc. as a SIFI, but the insurer won a court challenge against the designation in March 2016 — a decision currently under appeal by the government. In June 2016, the council voted to rescind GE’s SIFI designation after the company changed its business by divesting assets and changing its funding model.
The Consumer Financial Protection Bureau would be retained but restructured, and additional restrictions would be placed on its authority, according to the memo. For example, the bureau’s sole director would be removable by the president at will, and its market monitoring authority would be repealed.
Committee Ranking Member Maxine Waters, D-Calif., decried the proposal, saying, “This new version of the chairman's Wrong Choice Act … makes it crystal clear that Republicans mean to disarm our consumer protections, expose the American public to financial predators, and ultimately steer us in the direction of another Great Depression.”
The Financial Stability Oversight Council ignored its own standards and made an “arbitrary and capricious” decision when it designated MetLife Inc. as a systemically important financial institution, according to a ruling by a federal judge.