In this report, we go in depth into a new report from the Office of Financial Research (OFR) that lays out criteria with which to assess the systemic risk posed by a U.S. banking organization. Although OFR’s paper is an informal brief, not an official report, Senate Banking Committee Chairman Shelby (R-AL) has cited it frequently in recent Senate hearings as an alternative way to measure risk and, thus, a way to decide which U.S. banks should be subject to enhanced prudential regulation. The OFR approach could also be used in the House, which may take up legislation (see FSM Report SYSTEMIC76) based on global criteria and revise it to focus instead on OFR’s to address concerns about U.S. implementation of FSB standards. Importantly, were OFR’s approach adopted, it could preempt the FRB’s proposed one for setting the G-SIB surcharge (see FSM Report GSIB2), making it even more costly for custody banks and – as Sen. Shelby supports it – more punitive in general for the largest U.S. banks than for the regional banks.
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