Republican senators on the Banking Committee pushed Treasury Secretary Steven Mnuchin on Tuesday to stop the government from designating non-bank firms for extra regulation, saying that the post-crisis practice amounts to labeling those firms “too big to fail.”
In a letter sent to Mnuchin, the 10 Republicans asked him to review the Financial Stability Oversight Council’s process for singling out firms to be regulated by the Federal Reserve as if they were big banks.
Mnuchin chairs the Financial Stability Oversight Council, the super-group of regulators created by President Obama’s financial reform law to identify possible threats to the financial system. The group is tasked with labeling firms “systemically important financial institutions” and setting them up for extra scrutiny.
Those designations, the Republicans wrote, have “created substantial new regulatory costs while putting taxpayers on the hook for any future bailout to these firms.”
Republicans have long argued that the “systemically important” designation amounts to an explicit acknowledgment that the firms would get a bailout if they failed. Under Obama, however, regulators maintained that the designations made the system safer.
Firms that have received the label have fought it or sought to get out from it. Most notably, the insurer MetLife last year won a federal court decision that the council acted arbitrarily and capriciously in proclaiming it systemically important. The federal government challenged that decision under Obama.
Meanwhile, Republicans are planning to advance legislation that would curb the council’s powers. While any such bills would meet opposition from Democrats, some Democratic senators in the past have expressed interest in making it easier and less complicated for companies to slim down and change their business to escape added scrutiny.
