Key part of Dodd-Frank remains missing in action
By John Heltman
In 2012, the Federal Reserve issued a proposal designed to force changes at banks and systemically important nonbanks that showed early signs of financial distress. Since then, the proposal — required by the Dodd-Frank Act and hailed by many as an important backstop to ensure regulators keep a close watch on bank holding companies — appears to have vanished. …Karen Shaw Petrou, managing partner at Federal Financial Analytics, said all of the macroprudential rules that the Fed enacted over the past seven years, including new capital and liquidity requirements under Section 165 of Dodd-Frank, rely on the assumption that the Fed would be dutifully watching for signs of distress and act accordingly. Without Section 166 rules, she said, those assumptions are misplaced. “The sooner regulators intervene as a bank starts to fall apart, the less costly the bank failure and the less probable its broader systemic risk,” Petrou said. “If you put in place all of the stuff in 165, and the agencies issued all the rules but did nothing about it, then what was the point? Section 166 was supposed to be the point.”