by Peter J. Wallison
American Enterprise Institute
July 01, 2014
The Treasury and Federal Reserve, afraid of congressional opposition, have sought G-7 support for accelerated designations of capital markets firms as Systemically Important Financial Institutions (SIFI). If capital firms are designated as SIFIs and subjected to bank-like regulation by the Federal Reserve, the consequences for the U.S. economy would be dire. The dynamism of U.S. business follows from the fact that it is financed largely by the capital markets and not by banks. Putting the Fed in charge of regulating the major capital markets players would reduce their risk-taking and innovativeness, and designating them as SIFIs would in effect be declaring that they are too big to fail – undermining competition in every market in which a SIFI operates. It seems likely that the Treasury and the Fed are reacting to the fact that U.S. Congress is becoming aware of the significance of what FSOC is doing.

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