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Bank Systemic Risk Regulation: The $50 Billion Threshold in the Dodd-Frank Act

Bank Systemic Risk Regulation: The $50 Billion Threshold in the Dodd-Frank Act, December 6, 2017.

The 2007-2009 financial crisis highlighted the problem of “too big to fail” financial institutions—the concept that the failure of a large financial firmc ould trigger financial instability, which in several cases prompted extraordinary federal assistance to prevent their failure. This report focuses on one pillar of the Dodd-Frank Act’s (P.L. 111-203) response to addressing financial stability and ending too big to fail: a new enhanced prudential regulatory regime that applies to all banks with more than $50 billion in assets and to certain other financial institutions. Under this regime, the Federal Reserve is required to apply a number of safety and soundness requirements to large banks that are more stringent than those applied to smaller banks.
These requirements are intended to mitigate systemic risk posed by large banks:

  • Stress test sand capital planning ensure banks hold enough capital to survive a crisis.
  • Living wills provide a plan to safely wind down a failing bank.
  • Liquidity requirements ensure that banks are sufficiently liquid if they lose access to funding markets.
  • Counterparty limits restrict the bank’s exposure to counterparty default.
  • Risk management requires publicly traded companies to have risk committees on their boards and banks to have chief risk officers
  • Financial stability, regulatory interventions that can betaken only if a bank poses a threat to the financial stability..”.

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