Under Dodd-Frank, any bank with at least $50 billion in assets gets to participate in an annual round of stress tests. Good times are not had by all, and the least good times are often had by those closer to $50 billion in assets than those actually large enough to worry someone were something to go horribly Bear Stearns-esque. So why’s the number set at $50 billion? Because it sounded big at the time and because the legislative meat-grinder pulverizes all flexibility and nuance.
“All numbers are arbitrary, and in the rush, $50 billion seemed like a much bigger number,” Mr. Frank said in a recent interview….
Andrew Olmem, a Republican Senate staffer back when Dodd-Frank was being drafted, in 2014 wrote a legislative history of the $50 billion provision. He concluded Congress intended the stricter rules to be applied to banks based on considerations including risks and lines of business, not just size.
Now a special assistant to White House National Economic Council Director Gary Cohn, Mr. Olmem argued that nuance became less clear as the bill was reworked in 2010.
Cool, so everyone agrees that the current threshold is ridiculous, so we can all sing kumbaya and fix it, right?
Banks over the threshold are getting used to the fact that, despite President Trump’s promises to deregulate the banking industry, even an unpopular provision is hard to overturn in the current polarized political environment.
Here’s an incomplete list of reasons why we’re stuck at $50B:
- Republicans want a threshold of between $250 billion and $500 billion, but probably don’t have the votes. Democrats want a threshold of between $100 billion and $150 billion and aren’t particularly eager to provide the votes Republicans need.
- Members of the Senate Banking Committee are keenly aware of how large the banks based in their states are and a liable to think those numbers are critical data points in determining where the threshold is set.
- The midterm elections are only 18 months away and the next presidential election is only three-and-a-half years away.
- Vladimir Putin likes things just the way they are.