Two Sets of Standards, One Big Muddle for SIFIs

By Karen Shaw Petrou

There will be two turning points this month for the new regulatory framework for systemically important financial institutions. First, global regulators will reveal criteria to define global SIFIs — the biggest of the big. And the U.S. will take yet another stab at our SIFI standards, issuing the third proposal on how to tell a SIFI from a run-of-the-mill big nonbank financial company. As these standards take shape, there’s growing danger that their sum total will be flat-out silly: global SIFIs judged by just how humongous they are while U.S. SIFI standards slap around bank holding companies with as little as $50 billion in assets and even small foreign-bank operations here if the parent back home crosses the $50 billion threshold. The stakes here are very high. The global SIFI standards will cost covered firms first a punitive capital surcharge and then additional up-the-ante requirements. U.S. SIFI standards are set by Title I of the Dodd-Frank Act, meaning they are set in law and soon to come. The statute mandates an array of high-impact SIFI standards to be set by final rule no later than Jan. 21, 2012.