Federal Reserve unveils proposal to ease regulations for larger lenders
The Bank Policy Institute says the proposal falls short and fails to address underlying issues with bank regulations
Washington — The Federal Reserve said on Wednesday it wants to ease regulations for US lenders with less than $700bn in assets, a way to lessen the burden on big commercial lenders that do not have volatile Wall Street businesses.
Under the Fed proposal, midsized lenders including US Bancorp, Capital One Financial, PNC Financial and Charles Schwab would face lower liquidity and compliance requirements, and smaller banks would get even easier treatment.
The proposal stems from a law Congress passed in May that ordered the Fed to reduce regulatory burdens on community and regional lenders.
Under the proposal, which is subject to a comment period and may be revised, there would be four tiers of regulation for banks with more than $100bn in assets.
Those with $250bn to $700bn in assets could enjoy a reduced liquidity coverage ratio (LCR), which requires banks to hold high-quality assets that could easily be turned into cash. Banks in that range could see their liquidity requirements reduced by as much as 30%, the Fed said.
Smaller banks would have even less restrictive requirements and face stress tests of their capital plans less often than the annual exam the Fed now conducts.
Randal Quarles, the Fed’s vice-chair for supervision, said the changes should “meaningfully” reduce compliance costs for banks without injecting significant new risk into the banking system.
“These proposals embody an important principle: the character of regulation should match the character of a firm,” he said.
Globally systemic banks based in the US that have large capital markets businesses would not be affected by the proposed changes. Those include JPMorgan Chase, Bank of America, Citigroup, Goldman Sachs Group and Morgan Stanley.
The proposal also gives the Fed flexibility to impose stricter rules on banks with less than $700bn in assets if they engage in higher levels of risky activity.
The banking industry expressed disappointment. The proposal falls short and fails to address underlying issues with bank regulations, the Bank Policy Institute said.
“It does not do enough to tailor regulations based on banks’ risk profiles,” said Greg Baer, who heads the group.
The proposal was also met with criticism from advocates for stricter rules on Wall Street.
“Deregulating some of the largest banks in the country will make the financial system less safe, less stable and less protected from another crash,” said Dennis Kelleher, president and CEO of the proreform group Better Markets.
One Fed governor, Lael Brainard, voted against the proposal, arguing it went beyond Congress’s intent and exposed the financial system to unnecessary risk.
Although the proposal did not address US subsidiaries of foreign banks, the Fed said it intends to propose a separate rule for them “in the near future”.
It is also working with the Federal Deposit Insurance Corporation on changes to a requirement that big banks create plans for dismantlement in case of failure, known as “living wills”.