House Passes Dodd-Frank Amendment, But SIFI Uncertainty Remains

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One of the most unwieldy parts of the Dodd-Frank act (and a rare point of bipartisan agreement) is that the Federal Reserve has the right to designate non-bank systemically important financial institutions (SIFI), such as large life insurance companies, but it doesn’t have the authority to tailor the rules to fit a different business model. This week the House of Representatives passed a bill that would fix that, but SIFI insurers still have a long wait before finding out what’s expected of them.

“Yesterday the House overwhelmingly passed legislation that would amend Dodd-Frank,” writes Sterne Agee analyst John Nadel. “That’s the good news. The bad news is the House added several other unrelated measures to the legislation that leaves it unlikely the Senate will pass the law.”

Nadel confident the Dodd-Frank amendment will pass, eventually

Nadel still thinks that the amendment will eventually pass into law, but the inclusion of Republican-backed provisions on collateralized loan obligations and mortgages in the House version of the bill (the two versions were originally identical) means that the Senate won’t pass exactly the same bill and the two bodies will have to work out their differences before sending a bill to the President. And since House Republicans have started the negotiations by putting new items into their bill, it won’t be surprising if Senate Democrats follow suit. Add in the distraction of the election season and the lame duck period immediately after, and what could have been wrapped up quickly is now on hold.

Dodd-Frank: Regulatory uncertainty looms over SIFI insurers

Hearing that the Dodd-Frank rules will eventually be amended to reflect the differences between bank and insurance company balance sheets is comforting, but it still means that insurers don’t know what targets they will be expected to hit in the coming years since the Fed isn’t in a position to discuss rule changes, at least not formally, until Congress gives it the authority to do so. This regulatory uncertainty makes it harder for SIFI insurers to plan for the future and casts a bit of a pall over the industry.

Of course, this assumes that both sides value the amendment enough not to hold it hostage to other priorities. As we’ve seen from the tax inversion debate, it’s entirely possible for this partisan Congress to agree in broad terms (eg limiting tax inversions) and still do nothing.

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