WASHINGTON BUREAU — Rep. Barney Frank says insurers and other large financial institutions are running away from being classified as “systemically significant financial institutions” (SIFIs) even though being designated as a SIFI could reduce their cost of capital.
Frank, D-Mass., talked about the SIFI issue today during an appearance at the National Press Club that coincided with the 1-year anniversary of passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.
Members of Congress included SIFI provisions in the Dodd-Frank Act in an effort to give federal financial services regulators tools they can use to track and rein in any financial services company that appears to be important enough and troubled enough to threaten the stability of the U.S. financial system.
Some observers have suggested that a SIFI that is “too big to fail” should be able to get capital on good terms, because investors and lenders will assume the company has at least some backing from the federal government. But Frank said Congress made some progress at reducing the perception that being “too big too fail” is a good thing when it passed the Dodd-Frank Act.
“Nobody wants to be systemically significant except those people who have to be,” Frank said. “That’s except those people who have to be in.”
Also at the National Press Club, Frank said Republicans seem to be avoiding a confrontation over repeal of the Dodd-Frank Act, despite talk to the contrary.
“It is interesting that my Republican colleagues, unlike climate change and health care, don’t want to take this one on head on, because it’s still too popular,” he said.
Development of international financial standards is one area where strong progress is being made, Frank said. He said he believes the financial services industry representatives who spoke at a recent House Financial Services Committee hearing on international standards issues were very supportive of the act.
But some Republicans are undermining implementation of the Dodd-Frank Act by “coming at it sideways,” Frank said.
Republicans are using concerns about the deficit as an excuse to cut the budgets of the SEC and the U.S. Commodity Futures Trading Commission (CFTC), to keep the SEC and CFTC staffs from completing work on the regulations needed to implement the regulations, Frank said.
“The notion that the…$80 or $90 million can’t be done for the CFTC because of the deficit…is nonsense,” Frank said.
The amount the SEC and the CFTC need to develop Dodd-Frank Act regulations is a tiny sum compared to the cost of the wars in Iraq and Afghanistan, Frank said.
The Three Commissioners
The Dodd-Frank Act created a Financial Stability Oversight Council (FSOC) to help federal regulators identify monitor companies and trends that could hurt the U.S. financial system.
In addition to the heads of the federal financial institution regulatory agencies, such as the Federal Reserve Board and the U.S. Securities and Exchange Commission (SEC), the council is supposed to include 2 non-voting members with insurance expertise — a representative from the National Association of Insurance Commissioners (NAIC), Kansas City, Mo., and the head of the new Federal Insurance Office (FIO). The council is also supposed to include an independent voting member with insurance expertise.
The NAIC representative is John Huff, the Missouri insurance director, and the new FIO head is Michael McRaith, the former Illinois insurance director.
The Obama has just appointed S. Roy Woodall, a former Kentucky insurance commissioner, to be the independent FSOC member with insurance expertise.
Insurance groups had been complaining for months about the FSOC lacking a voting member with insurance expertise while deliberating on matters that could affect the insurance industry.
Getting all three insurance members took time, but “no decisions were made adverse to or favorable to the insurance industry in the absence of the [voting] appointee,” Frank said.”State insurance commissioners should be feeling good, because the three appointees have all been state insurance commissioners.”