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Bill to eliminate SIFI designations passes House committee

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Legislation that would eliminate the authority to tag insurers and banks as “too big to fail” was adopted by the House Financial Services Committee on Thursday. 

The Financial CHOICE Act, the Republican-developed alternative to the Dodd-Frank Wall Street Reform and Consumer Protection Act, was introduced last week by Financial Services Committee Chairman Jeb Hensarling, R-Texas. It would eliminate or revise several features of Dodd-Frank, including retroactively repealing the authority of the Financial Stability Oversight Council to designate firms as systemically important financial institutions, or SIFIs.

The committee adopted the legislation by a 34-26 vote. 

“The Financial CHOICE Act ends bailouts so Washington can never again pick taxpayers’ pockets and hand the money over to big banks,” Mr. Hensarling said in a statement. “With the Financial CHOICE Act, the era of big bank bailouts and ‘too big to fail’ will be over. There will be bankruptcy for failed banks, not bailouts. And banks that qualify for much-needed regulatory relief will be so well capitalized that they pose no threat to taxpayers or the economy.”

The general expectation is that the current bill will make its way through the House but could run into challenges in the U.S. Senate, where 60 votes would be needed for adoption. 

In July 2013, the council voted to designate New York-based 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 altering its funding model.