Banking and Finance Law Daily Brown criticizes decisions on Countercyclical Capital Buffer, SIFI designation process
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Friday, March 8, 2019

Brown criticizes decisions on Countercyclical Capital Buffer, SIFI designation process

By Colleen M. Svelnis, J.D.

Senator Sherrod Brown disapproves of the Fed’s decision to keep the countercyclical capital buffer at zero and the FSOC’s proposed interpretive guidance for nonbank SIFI designations

Following the Federal Reserve Board’s announcement that it will keep the Countercyclical Capital Buffer (CCyB) at the current level of zero percent, Sen. Sherrod Brown (D-Ohio), Ranking Member of the Senate Committee on Banking, Housing, and Urban Affairs, expressed his disappointment. "I’m disappointed with the Fed’s decision to not raise the countercyclical capital buffer, especially considering that Federal Reserve Bank presidents, Governor Brainard, and others believe it should be used," said Brown. "Banks are doing well, but there are certainly growing risks in the economy. Now is exactly when the buffer should be used to make sure that the banks have enough capital for those eventual bad times."

The CCyB is designed to be released when economic conditions deteriorate, in order to support lending and economic activity more broadly. The buffer could also help moderate fluctuations in the supply of credit. The Fed made its decision based on framework detailed in its policy statement for setting the CCyB and consulted with the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency in making the determination.

SIFI designations. Brown also responded to the Financial Stability Oversight Council’s proposed interpretive guidance for nonbank SIFI designations, stating that the steps taken by the FSOC "undermine important post-crisis financial safeguards." Under the Dodd-Frank Act, the FSOC is authorized to determine that certain nonbank financial companies are to be treated as systemically important financial institutions (SIFIs), and be subject to supervision by the Fed and prudential standards. Brown stated that the new proposal "ignores the damage done to our financial system during the last crisis and the risks still posed by shadow banks and other financial institutions. FSOC is no longer protecting financial stability or taxpayers."

The FSOC unanimously voted to seek comments on a proposed interpretive guidance that would replace the Council’s existing interpretive guidance designating nonbank financial companies as SIFIs under the Dodd-Frank Act. The proposed interpretive guidance would replace the 2012 Interpretive Guidance, the 2015 Supplemental Procedures, and the 2015 staff guidance regarding the Stage 1 thresholds (see Banking and Finance Law Daily, March 7, 2019).

Consumer advocacy group responds. Marcus Stanley, policy director at Americans for Financial Reform issued a statement in response to the Fed’s decision to eliminate qualitative objections to bank capital distributions under their stress test process. Stanley stated that this will result in increased risks to the public and means that banks "would be able to hand out capital to their shareholders instead of reserving it against losses, even if banking supervisors find that shortcomings in their risk management and data systems pose a danger to the soundness of the bank."

Companies: Americans for Financial Reform

MainStory: TopStory BankingFinance DoddFrankAct FinancialStability PrudentialRegulation

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