At the invitation of Sen. Sherrod Brown D-
Under the financial regulation law known as Dodd-Frank, passed in the wake of the 2008 financial crisis, bank holding companies with assets of at least
Those banks, along with certain non-bank financial institutions also considered to be systemically important, must comply with additional federal regulations. Compliance has a price tag, which cuts into profits.
The question, Thomson says, is whether
But beyond that, he believes defining systemically important financial institutions by size alone is the wrong approach. The kind of business a bank does, the risks it takes and other factors are better indicators, he says.
Taking a '
"If they're not posing a threat to the financial system," he says, "then why are you doing that?"
Thomson would like to see regulators give more consideration to factors other than size when assessing an institution's level of risk. He proposes the "
* Contagion: If an institution fails, how will its losses spread across the financial system and affect other companies?
* Correlation: Many institutions have portfolios that are very similar. If something bad happens, they all stand to suffer big losses. Regulators should require more detailed reporting of assets to gauge exposure.
* Concentration: The presence of a few big players in a market means that the failure of one would cause a major problem.
* Context/Conditions: When markets are fragile, failing firms are more likely to benefit from political intervention to save them than during more normal market conditions.
Thomson is available to discuss the issues surrounding systemically important financial institutions. Read his subcommittee testimony.
TNS 30TagarumaMar-140723-4804853 30TagarumaMar
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