Garrett Introduces Bicameral Legislation to Prevent the Spread of “Too-Big-To-Fail” to Non-Bank Financial Institutions
WASHINGTON, DC – Rep. Scott Garrett (R-NJ), Chairman of the House Financial Services Subcommittee on Capital Markets and Government-Sponsored Enterprises and Senator David Vitter (R-LA), member of the Senate Committee on Banking, Housing, and Urban Affairs today introduced the Terminating the Expansion of Too-Big-To-Fail Act, which would prevent the spread of “Too-Big-To-Fail” to non-bank financial institutions. In particular, the bill would remove the government’s authority to designate non-bank financial institutions as “systemically important financial institutions” as outlined in Title 1 of the Dodd-Frank Act. Garrett issued the following statement after introducing the bill in the House:
“I believe we have a virus in our banking system that is stifling competition and innovation. It protects incompetent management and insulates antiquated business models from market discipline. It incentivizes the largest banks to grow even larger and makes these mega-banks captive to government influence. This “Too-Big-To-Fail” virus is now poised to spread beyond banks to other types of financial firms. Not surprising, it is the government that is preparing to label other financial firms “Too-Big-To-Fail” by designating them as systemically important and spreading these market distortions.
“This is why today I am introducing the Terminating the Expansion of Too-Big-To-Fail Act. This would remove the authority for the government to designate non-bank financial institutions as “systemically important financial institutions” as contained in Title 1 of the Dodd-Frank Act. The Financial Stability Oversight Council (FSOC), created under the Dodd-Frank Act, published a rule setting forth the procedure for designating non-bank companies as systemically important that is unclear and provides no understanding about what standards will be used to make these designations. Chosen companies will be subjected to enhanced regulation by the Federal Reserve System.
“While the Federal Reserve proposed a rule that would apply the same regulations for the largest banks to the designated non-banks, in testimony before the Financial Services Committee last week, Treasury Secretary Geithner also indicated that the designations of non-bank financial institutions would happen this year. It is now time for Congress to act.
“We cannot allow “Too-Big-To-Fail” to take root in our non-bank financial institutions. These institutions must not be allowed to be captured in the same regulatory scheme that will protect them from market forces, stifle innovation and creativity in the broader financial sector, and ensure taxpayers remain on the hook for their failure. We have seen in our banking system the impacts of “Too-Big-To-Fail” over the last several decades. Consolidation of our banking system into fewer and larger institutions continues and has accelerated during the last crisis. And as we saw in the last crisis, these institutions become the tools of government intervention at the behest of the Treasury and Federal Reserve.
“I look forward to working with my colleagues in the House to prevent the spread of “Too-Big-To-Fail” and I thank Senator Vitter for all of his hard work on introducing this legislation in the Senate.”