6 items on Fed’s full regulatory docket
June 17, 2018 10:00 PM
Andrew Harrer/Bloomberg
6 items on Fed’s full regulatory docket
On the regulatory front, the Federal Reserve Board has been active under Chairman Jerome Powell. The workload is expected to remain busy for the foreseeable future, thanks in large part to enactment of the recent regulatory relief bill.
At a press conference on Wednesday, Powell said the Fed has “a pretty full docket right now” on regulatory issues. That he would be focused on regulatory issues makes sense. When he became head of the central bank’s Supervisory Committee as a Fed governor, he committed to revising bank board rules, increasing transparency around stress tests and amending the enhanced supplementary leverage ratio to make it less binding.
“The financial system all but failed 10 years ago,” Powell said at the press conference. “We went to work for 10 years to strengthen it — stronger capital, stronger liquidity, stress testing, resolution planning. We want to keep all that stuff. We want to make it even more effective and certainly more efficient.”
Powell also noted that the agency is working on tailoring regulation for smaller institutions, which critics say the Dodd-Frank Act neglected to do. This is in addition to implementing a key reform of the reg relief bill that President Trump signed into a law: an increase in the asset threshold for “systemically important financial institutions” to $250 billion, from $50 billion.
Here is a list of items taken on by the Fed exclusively or where the central bank is working with other regulators. Some rules have already been finished, and some have yet to begin.
At a press conference on Wednesday, Powell said the Fed has “
“The financial system all but failed 10 years ago,” Powell said at the press conference. “We went to work for 10 years to strengthen it — stronger capital, stronger liquidity, stress testing, resolution planning. We want to keep all that stuff. We want to make it even more effective and certainly more efficient.”
Powell also noted that the agency is working on tailoring regulation for smaller institutions, which critics say the Dodd-Frank Act neglected to do. This is in addition to implementing a key reform of the reg relief bill that President Trump signed into a law: an increase in the asset threshold for “systemically important financial institutions” to $250 billion, from $50 billion.
Here is a list of items taken on by the Fed exclusively or where the central bank is working with other regulators. Some rules have already been finished, and some have yet to begin.
Andrew Harrer/Bloomberg
Single Counterparty Credit Limits
On Thursday, the Fed released its final rule focused on single-counterparty credit limits , which the board approved unanimously at an open meeting. These limits control the amount of aggregate net credit exposure that a large bank can have to an unaffiliated group or individual.
“This final rule is another step in sustaining an effective and efficient regulatory regime that keeps our financial system strong and protects our economy while imposing no more burden than is necessary to get the job done,” Powell said at the open board meeting.
“This final rule is another step in sustaining an effective and efficient regulatory regime that keeps our financial system strong and protects our economy while imposing no more burden than is necessary to get the job done,” Powell said at the open board meeting.
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Long-term liquidity requirement
One of the last major Obama-era rules, the net stable funding ratio would require systematically significant banks to maintain enough debt and liquid assets to keep the firms’ operations afloat for at least a year. The liquidity measure was part of the Basel III international accord.
It was widely thought that the rule would be dropped or weakened under the Trump administration, and regulators have been under pressure from banking organizations and some policymakers to stall the rule. However, Fed officials have resisted. In October 2017, Powell said the Fed would continue work on the NSFR.
It was widely thought that the rule would be dropped or weakened under the Trump administration, and regulators have been under pressure from banking organizations and some policymakers to stall the rule. However, Fed officials have resisted. In October 2017, Powell said the Fed would continue work on the NSFR.
Andrew Harrer/Bloomberg
SIFI threshold
The provision in the regulatory relief bill that President Trump signed in May that garnered the most attention was a notable hike in the asset threshold for SIFIs from $50 billion to $250 billion.
This reduces the number of banks subject to enhanced Fed supervision under Dodd-Frank rules from 38 to 12. The Fed has the authority to decide if banks with assets of $100 billion to $250 billion still face supervision.
Banks with assets between $50 billion and $100 billion were immediately exempt from supervision, while banks with assets between $100 billion and $250 are set to be exempt 18 months after the bill was signed. This gives the Fed less than two years to decide which banks will be overseen.
“We've got to think about how we would reach below that $250 billion threshold to assess and supervise, regulate financial stability risk below that level,” Powell said Wednesday.
This reduces the number of banks subject to enhanced Fed supervision under Dodd-Frank rules from 38 to 12. The Fed has the authority to decide if banks with assets of $100 billion to $250 billion still face supervision.
Banks with assets between $50 billion and $100 billion were immediately exempt from supervision, while banks with assets between $100 billion and $250 are set to be exempt 18 months after the bill was signed. This gives the Fed less than two years to decide which banks will be overseen.
“We've got to think about how we would reach below that $250 billion threshold to assess and supervise, regulate financial stability risk below that level,” Powell said Wednesday.
Joshua Roberts/Bloomberg
Finalize Volcker Rule changes
The regulatory relief bill signed last month exempted banks with less than $10 billion in assets from the Volcker Rule. But regulators, including the Fed, unveiled a proposal last month to simplify compliance procedures for institutions still subject to the proprietary trading ban.
Regulators have maintained that the core components of the rule will maintain intact. Yet some officialshave opposed the proposed changes, saying they go too far and would allow large banks to skirt appropriate oversight.
Regulators have maintained that the core components of the rule will maintain intact. Yet some officials
Aaron P. Bernstein/Bloomberg
Changes to the enhanced supplementary leverage ratio
The Fed and Office of the Comptroller of the Currency extended the comment deadline on their proposal to adjust the enhanced supplementary leverage ratio, or eSLR. The capital measure would transition from a fixed ratio applied to all of the biggest banks to a variable ratio based in part on bank’s capital surcharge.
The proposal has had its critics. Fed Gov. Lael Brainard voted against the measure, and the Federal Deposit Insurance Corp. — which helped write the original eSLR rule — withheld support for the proposed changes. FDIC Chairman Martin Gruenberg claimed it would lead to large banks holding $121 billion less in Tier 1 capital.
The proposal has had its critics. Fed Gov. Lael Brainard voted against the measure, and the Federal Deposit Insurance Corp. — which helped write the original eSLR rule — withheld support for the proposed changes. FDIC Chairman Martin Gruenberg claimed it would lead to large banks holding $121 billion less in Tier 1 capital.
Andrew Harrer/Bloomberg
CRA modernization
Comptroller of the Currency Joseph Otting has been the most vocal in supporting a plan to modernize enforcement of the Community Reinvestment Act, but the CRA has traditionally implemented with the Fed and FDIC on board as well.
Otting has signaled his agency could move on its own with a CRA plan, but there is also speculation that the regulators will try to present a united front. The recent confirmation of Jelena McWilliams to run the FDIC could speed up the release of an interagency proposal.
Otting has signaled his agency could move on its own with a CRA plan, but there is also speculation that the regulators will try to present a united front. The recent confirmation of Jelena McWilliams to run the FDIC could speed up the release of an interagency proposal.
