WASHINGTON — Federal financial regulators have begun rolling out a plan to provide regulatory relief to smaller regional banks no longer considered a systemic risk, as part of a much larger deregulatory package recently passed by Congress.
The initial plan, outlined in a statement by regulators on Friday, addresses how they would provide relief to banks with $100 billion in assets or less after Congress passed a law in May that raised the threshold for systemically important banks. The Federal Reserve, the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency issued the joint statement.
Specifically, the plan exempts certain regional banks from heightened requirements including stress testing and living wills. However, the regulators also cautioned that smaller regional banks would still be subject to other capital planning requirements.
"The Committee has stated that we do not expect it will be appropriate to reduce the target range for the federal funds rate until we have gained greater confidence that inflation is moving sustainably toward 2%."
“The agencies will continue to supervise and regulate financial institutions within their jurisdictions to ensure the safety and soundness of individual institutions and the stability of the broader banking system,” said the regulators in a statement. “Thus, for example, while the agencies will not take action to require company-run stress testing by depository institutions with assets less than $100 billion, the capital planning and risk management practices of these institutions would continue to be reviewed through the regular supervisory process.”
The regulatory relief law immediately lifted the threshold for systemically important banks to at least $100 billion. That line will be moved to $250 billion in November 2019, although regulators will still have the option of maintaining stricter oversight on specific institutions between $100 billion and $250 billion.
The banking agencies said they are staggering how they will implement changes to the bill’s various deadlines.
But observers noted that the plan does not address other significant requirements, such as how the agencies will treat certain regional banks under certain capital and liquidity requirements or how they will be treated under the Fed's annual Comprehensive Capital Analysis and Review, or CCAR, process.
“The most important thing is what was not discussed . . . there is no discussion of what will happen to the majority of regional banks. It is why we continue to believe they will be included in CCAR 2019 and subject to capital planning,” wrote Jaret Seiberg of Cowen Washington Research Group, in an analyst note Friday. “There also is not any discussion about changing how the Liquidity Coverage Ratio applies to all regional banks. It is why we believe all regional banks will remain subject to a liquidity requirement.”
The regulators also said they would engage in other rulemaking processes on easing the Volcker Rule and other reporting requirements for smaller banks, as required in the Crapo bill, at a later date.
Still, banking groups praised the plan as way of tailoring the Dodd-Frank Act's strict mandates.
“Today’s action will spare many banks from having to participate in stress tests that both regulators and banks have said provided little value and only distracted from more effective safety and soundness tools,” said Rob Nichols, president and CEO of the American Bankers Association in a statement. “Instead of a one-size-fits-all approach, regulators are now bringing us closer to a program of tailored supervision in stress testing, which will allow banks to devote more of their time and resources to serving their customers and communities and helping grow the U.S. economy.”
