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Moody's: Raised SIFI threshold eases oversight, could be credit-negative

An increase in the asset threshold for systemically important financial institutions could mean looser risk governance and more aggressive capital management: a credit negative, according to Moody's.

A bill that recently passed in the U.S. Senate would impose enhanced regulation for so-called SIFIs on institutions with at least $250 billion in total consolidated assets, instead of the current $50 billion. This regulation includes the Federal Reserve's stress test and living will requirements.

The bill still needs to be approved by the House of Representatives and signed by the president in order to become law.

Banks above $100 billion and below $250 billion could become exempt from these requirements after 18 months, but four banks under $100 billion would become immediately exempt: New York-based CIT Group Inc., which had $49.28 billion in assets at the end of 2017; Salt Lake City's Zions Bancorp., which had $66.29 billion; Dallas-based Comerica Inc., with $71.57 billion; and Houston's BBVA Compass Bancshares Inc., which had $87.32 billion.

With so many banks potentially dropping out of the public stress tests, transparency will be reduced, which is also credit-negative, Moody's noted.

"That said," Moody's Vice President Rita Sahu commented, "we expect some credit positive risk governance practices, notably stress testing, will remain embedded in banks' internal processes."