House passes bill changing 'too big to fail' standards

House passes bill changing 'too big to fail' standards
© Greg Nash

A bill that would change the federal standard that determines whether banks pose widespread economic risks passed the House on Thursday evening largely along party lines. 

Under the Dodd-Frank financial reform law, a bank or bank holding company with at least $50 billion in assets is considered to be a “systemically important financial institution,” nicknamed “too big to fail.”


That label subjects qualifying firms to tougher federal oversight, including tests to see how they’d weather a financial crisis and drawing up plans to sell off their assets if one strikes.

The bill passed Thursday replaces the $50 billion standard with an analysis based on the firm's assets and investment activities.

Republicans have long targeted the “too big to fail” standard, arguing it lumps in smaller firms that wouldn’t cause a widespread crisis if they failed. Republicans also say labeling banks “too big to fail” puts government on the hook for bailing them out, saving banks from a liquidation process.

The bill passed 254-161 with few Democrats backing it. The meager bipartisan support indicates Democrats are digging in ahead of an expected fight over Dodd-Frank’s future in 2017.

President-elect Donald TrumpDonald John Trump Former US ambassador: 'Denmark is not a big fan of Donald Trump and his politics' Senate Democrats push for arms control language in defense policy bill Detroit county sheriff endorses Booker for president MORE promised to “dismantle” Dodd-Frank, but the narrow Republican Senate majority means a full repeal would be difficult to move past a filibuster. 

House Financial Services Committee Chairman Jeb Hensarling (R-Texas) unveiled a Dodd-Frank replacement earlier this year, which contains several reforms that could earn bipartisan support.