Federal Reserve officials are planning to move quickly to ease regulatory burdens on regional banks by implementing the bipartisan legislation signed by President Trump in May.
The law gives regulators an 18-month deadline for putting the regulatory relief measures in place, but “we can and will move much more rapidly than this,” Fed Vice Chairman for Supervision Randal Quarles said Wednesday in a speech at an American Bankers Association event in Salt Lake City.
The law eases a number of regulations that apply to regional banks — banks that are larger in size than community banks, but much smaller and less complex than Wall Street megabanks like JPMorgan Chase and Goldman Sachs.
A key provision of the law raises the threshold at which banks are automatically subjected to more stringent oversight from $50 billion to $250 billion, giving a break to regional banks like Fifth Third Bank and SunTrust.
On Wednesday, Quarles said that the Fed would also look into providing further relief for banks above that threshold, as allowed for by the law.
“I believe there should be a clear differentiation,” he said, between the handful of megabanks that are considered potential global systemic risks and regional banks that happen to have more than $250 billion in assets.
Speaking in testimony before the House Financial Services Committee Wednesday, Fed Chairman Jerome Powell also said that the Fed plans to modify some rules for regional banks that happen to fall above the $250 billion cutoff.
“The bill gives us a great deal of flexibility to identify the appropriate factors” for tailoring regulators to the size of banks, he said.
“We’re working hard on it right now,” he added in responding to questions with Rep. Keith Rothfus, a Republican from the Pittsburgh area.
Pittsburgh-headquartered PNC, with around $370 billion in assets, is one of the banks that would stand to benefit from such a move. U.S. Bank, with around $450 billion in assets, is another.
Powell said that the Fed plans to put out a framework for assessing how much of a potential risk individual banks pose in case of failure, to determine which regulations would apply to them. Then the central bank would take public feedback on the rubric.
Quarles suggested Wednesday that the framework would likely be based in part on the sheer size of the bank, but also other factors like business outside the country, complexity, and reliance on short-term debt.
As for the specific form of regulatory relief, Quarles suggested that banks below the $250 billion threshold could be required to undergo less frequent “stress tests,” in which the Fed gauges how they would perform in a hypothetical financial crisis.
Quarles also offered that the banks might forgo having to write “living wills” spelling out how they would go bankrupt, in case of a failure, without dragging the rest of the financial system with them.
Additionally, they could be given relief from the liquidity rules that require them to maintain certain amounts of assets that can reliably be sold for cash in an emergency.
