Reps. García and Porter Introduce Systemic Risk Mitigation Act to Rein in Shadow Banks like BlackRock

April 14, 2020
Press Release

Washington, DC - Today Congressman Jesús “Chuy” García (IL-04) and Congresswoman Katie Porter (CA-45) introduced the Systemic Risk Mitigation Act. While the coronavirus pandemic drags our economy into a recession and the Trump administration deregulates our financial sector, this bill strengthens oversight of the shadow banks engaging in risky practices that destabilize the financial system. Shadow banks are large, complex and interconnected firms-- like insurance companies, asset managers and hedge funds-- that sit at the center of our financial system but escape regulations such as capital and liquidity rules, stress tests and living wills by avoiding the designation of “systemically important.”

“While my constituents worry about putting food on the table, poorly regulated shadow banks gamble with our economy and endanger the future recovery. The Systemic Risk Mitigation Act begins to balance rules that are rigged for Wall Street profits. We are in the midst of a major business slowdown, but the Trump administration won’t stop corporate America from loading up on risk and debt,” Congressman García said.“Congress must act now to rein in firms like BlackRock and AIG before they further harm our financial stability.”

“We learned in 2008 what happens when an entire sector of our economy is under-regulated. I’ve seen this movie before, and I didn’t like it the first time,” said Congresswoman Porter. “We can’t afford to continue to hope that corporations will appropriately self-regulate. After the financial crisis, Congress attempted to create a watchdog tasked with identifying and addressing systemic risk. But the Trump Administration has starved the Financial Stability Oversight Council of appropriate funding and staff. So, this bill codifies minimum staffing requirements and a budget floor for the FSOC. It also provides the Council with the tools it needs to function as a real watchdog over shadow banks.

“The U.S. financial system was overly-fragile heading into this period of pandemic-induced stress, in part, because of the weak regulatory framework in place for the shadow banking sector. The Trump administration has severely undermined the tools and agencies established to address the systemic risks that emerge outside of the traditional banking system,” said Gregg Gelzinis, senior policy analyst at the Center for American Progress. “Congress must act to ensure that large, complex, and interconnected shadow banks and their risky activities don’t threaten the real economy.”

The Systemic Risk Mitigation Act:

  • Automatically designates shadow banks above a certain size and riskiness as “systemically important.” These large, complex, and interconnected shadow banks would be subjected to strong capital and liquidity rules, annual stress tests, living wills requirements, and other crucial safeguards;
  • Provides a process for de-designation of firms that are found not to meet the standard of systemic importance;
  • Strengthens the Financial Stability Oversight Council (FSOC) by giving the Council rule-making authority to address systemically risky activities across the financial system;
  • Provides the FSOC and Office of Financial Research (OFR) with more resources and increases their transparency;
  • Creates a Climate Change Subcommittee of the FSOC to assess the risk posed by climate factors to the stability of the U.S. financial system.