The Goldilocks Solution: Getting Systemically Important Financial Institution Regulation Just Right

One of the most important decisions regulators will make in the coming months is to define “systemically important financial institutions (SIFIs),” as required under the Dodd-Frank comprehensive financial reform law, named after its lead sponsors, Senator Chris Dodd and Rep. Barney Frank. This designation will have critically important effects, not only on the designated institutions, but on entire industries and the economy at large. The law designated all commercial banking groups with $50 billion or more in assets as SIFIs, but left the decision about which non-bank financial institutions should receive that designation up to the Financial Stability Oversight Council (FSOC), with advice from the Federal Reserve Board. As with many regulatory decisions, there are dangers of including too few and too many institutions. The tough regulatory assignment is to steer a middle course, avoiding the dangers of either extreme.

On February 17, the Initiative on Business and Public Policy at the Brookings Institution hosted a discussion on charting the course for SIFIs within the broad context of the Dodd-Frank financial regulatory reform. Brookings Senior Fellow Martin Baily, director of the Initiative on Business and Public Policy, gave introductory remarks, followed by a presentation by Fellow Douglas Elliott of a paper he co-authored with Senior Fellow Robert Litan.

Panelists and speakers took questions from the audience.