Republican chiefs on the House Financial Services Committee are challenging financial regulators on how they oversee the world’s largest, most complex financial firms.
In a letter sent Friday, the lawmakers argued that U.S. regulators were adopting a “we know it when we see it” approach to determine what large institutions merit heightened oversight and regulations. Furthermore, they said such decisions were made behind closed doors with unclear criteria, and the institutions being scrutinized have little input into the matter.
The letter was signed by Chairman Jeb Hensarling (R-Texas), as well as his five subcommittee chairmen.
The particular gripe the lawmakers have with regulators is how they work with their international counterparts to determine what global firms qualified as “G-SIFIs,” or globally systemically important financial institutions.
Banks and other institutions that receive this label are subjected to heightened oversight and regulations, as watchdogs argue their stability is critical to the health of financial markets.
But the lawmakers argued that there is no clear definition of what constitutes “systemic risk,” and regulators have not laid out clear enough criteria for what an institution would need to do to merit such heightened oversight.
Furthermore, they said that companies being reviewed for such a label have struggled to meet with members deciding on the designation, nor are they given information on what steps they can take to remove the designation once granted.
And finally, the lawmakers expressed concern with the fact that U.S. regulators were housing the G-SIFI designation process within the Financial Stability Board, an international group based in Switzerland that includes members from all G-20 nations. The Republican lawmakers said such an arrangement only heightens the opacity of the process, noting that the group has no authority under U.S. law.
“The last thing we should do is surrender U.S. sovereignty on financial regulatory matters to an international ‘old boy’s club’ that deliberates in secret,” they wrote.
The letter marks the latest push from the GOP as they have argued that regulator efforts in the wake of the financial crisis have lacked transparency. Several Republicans have pushed for more openness from the Financial Stability Oversight Council, a board established by the Dodd-Frank financial reform law that gathers regulators to make similar “systemically important” designations for U.S. institutions.
The lawmakers demanded regulators make clear how the U.S. and global efforts overlap, and called for specific metrics when it comes to designation a firm as systemically important. Furthermore, they called for regulators to meet more often with companies being evaluated, and for the board open all its meetings to the public and Congress.