José E. Serrano: “Dodd-Frank does not designate any entity as too big to fail, as paragraph 1 of the Garrett amendment suggests. Instead…”

“Dodd-Frank does not designate any entity as too big to fail, as paragraph 1 of the Garrett amendment suggests. Instead, Dodd-Frank provides regulators with the tools to address the risks posed by large, complex, and interconnected financial institutions, both banks and nonbanks alike. This is crucial to addressing one of the main regulatory gaps we witnessed leading up to the 2008 crisis: too many nonbanks were in the shadows and escaped critical regulation that could have prevented the crisis. The Garrett amendment is an attempt to roll back the critical rules of the road we passed in the wake of the greatest financial crisis since the Great Depression. Large financial institutions are fighting the SIFI designation because they know that being identified as SIFI means being subject to regulation above and beyond current requirements, including living wills that will help regulators plan how to wind down the firms in an orderly fashion in the event they become insolvent. The heightened regulation also includes the ability for regulators to stress-test the entity to see if it can withstand financial distress, demand more capital, or to demand more stringent reporting.…”