U.S. Federal Reserve unveils proposal to ease regulations for larger banks
The U.S. Federal Reserve unveiled a proposal on Wednesday that would ease regulations for banks with less than $700 billion in assets, as the central bank looks to tailor rules in line with banks’ risk profiles.
PNC Financial Corp (PNC.N), Capital One Financial Corp (COF.N), Charles Schwab (SCHW.N), and U.S. Bancorp (USB.N) would enjoy reduced liquidity and compliance requirements under the proposal, which the Fed board approved on Wednesday. Several smaller banks would see further reduced regulation as the Fed implements changes ordered in a bank deregulation law Congress passed in May.
The proposal establishes four tiers of regulation for banks with over $100 billion in assets, as the central bank seeks to tailor rules for larger firms. The proposal would reserve the strictest rules for U.S. globally systemic banks, and step down requirements for smaller and less complex firms.
The law rewriting portions of the 2010 Dodd-Frank financial reform law directed the Fed to trim regulations for banks with less than $250 billion in assets, and also gave the central bank discretion to further modify rules for larger banks as it saw fit. Wednesday’s proposal goes beyond the $250 billion threshold authorized by Congress, as it aims to provide relief to all but the nation’s nine largest banks.
According to the proposal, banks with between $250 billion and $700 billion in assets could enjoy a reduced “liquidity coverage ratio,” which requires banks to hold high-quality assets that could easily be turned into cash.
The Fed estimated the proposal could reduce that ratio by as much as 30 percent for those firms.
Smaller banks would be subjected to less frequent “stress tests” of their capital plans by the Fed, and face even less restrictive liquidity and capital requirements.
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.
However, Fed Governor Lael Brainard voted against the proposal, arguing it went beyond Congress’s intent and exposed the financial system to unnecessary risk by easing rules on larger banks. She was the only one of the four current Fed board members to oppose the plan, which now goes forward for public comment.
The proposal reserves the strictest rules for the nation’s largest global banks, and also keeps tougher rules for Northern Trust (NTRS.O), as the Fed said banks with over $75 billion in cross-border activity should continue to face stricter rules.