WASHINGTON, D.C. — On Wednesday, U.S. Sen. Sherrod Brown (D-OH) chaired a hearing of the Banking Subcommittee on Financial Institutions and Consumer Protection. The hearing, entitled “What Makes a Bank Systemically Important?” examined financial institutions with over $50 billion in assets and the level of risk they pose to the U.S. financial system. The hearing also examined the impacts to regional institutions when a one-size-fits all approach is taken to financial reform.
Those testifying at the hearing included:
Brown’s remarks, as prepared for delivery, follows.
Opening Statement - Senator Sherrod Brown
What Makes a Bank Systemically Important?
July 16, 2014
Thank you to the witnesses for joining us today and to Senator Toomey for working with me on this hearing.
Three regional banks are headquartered in each of Ohio’s three biggest cities and serve customers throughout the state, with other regionals serving Ohioans, too.
These banks operate under a very traditional banking model – taking deposits and lending to families and small businesses, but each are over the $50 billion in assets, making them subject to enhanced supervision by the Federal Reserve.
While non-banks are judged based upon a specific set of criteria, the Dodd-Frank Act requires all banks with more than $50 billion to be automatically viewed as Systemically Important.
Each of these three Ohio banks serve an important role in the communities that they serve, but from what I can tell, none of these regional institutions would threaten the U.S. or global financial system or economy if they were to fail.
Many in Washington are attacking the Financial Stability Oversight Council, or FSOC, let’s be clear – this was a designation created by Congress.
Some Washington politicians say this line means that all of these banks are Too Big to Fail.
But financial regulators say that the failure of a $50 billion bank would not threaten the financial system.
This group of 33 banks contains banks with diverse business models – universal banks, regional banks, trust banks, and foreign banks – and diverse geographic footprints – Columbus, Ohio; Pittsburgh, Pennsylvania; Salt Lake City, Utah; Montreal, Canada; and Santander, Spain.
They range in size from $2.4 trillion in assets to $56 billion; from operating in 100 countries to operating in one country.
Clearly, not all of these banks are the same.
That is why other rules use different thresholds – for example, banks with $250 billion are subject to a Liquidity Coverage Ratio, while banks with more than $700 billion in assets must meet a Supplementary Leverage Ratio.
It is clear that regulators believe that these institutions present different levels of risk – in May, Governor Dan Tarullo said that banks between $50 billion and $250 billion are “overwhelmingly recognizable as traditional commercial banks (though a few do have significant capital market or other activities).”
So today we are exploring what makes a bank “systemically important” by looking at issues like size, leverage, business model, and funding sources.
We will consider what the failure of a $100 billion bank, a $300 billion bank, or a $1 trillion bank would mean for the financial system and the economy.
We will also look at tools that regulators have – or should have – to prevent the failure of a systemically important bank, or to protect taxpayers and the economy if one does fail.
It’s important that we strike the right balance between identifying the institutions and activities that present the most risk, while not becoming complacent and taking our eyes off of potential sources of risk.
I thank the witnesses for their testimony, and I look forward to a meaningful discussion.
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