The Fed Proposes Reducing Regulatory Burdens For Banks

Under the Federal Reserve’s newly proposed banking regulations unveiled on Wednesday, banks with less than $700 billion in assets could potentially face lighter regulations, compared to the Dodd-Frank regulatory framework. The Fed’s proposed design is based on broad range of factors including a bank’s asset size, exposure to foreign markets and off-balance sheet activities and other aspects. 

Here are some of the highlights of the Fed's new proposed rules, which might be subject to further revisions

- Banks with $250 billion to $700 billion in assets could see their required liquidity coverage ratio (i.e. assets that can be quickly sold for cash) get reduced by as much as 30 percent. They would continue to face annual stress tests, though.

- Institutions holding assets between $100 billion and $250 billion might no longer have to meet regulatory liquidity buffers, and such banks can expect the Fed’s stress tests at a frequency of every two years (versus every year). Examples of these banks are SunTrust Inc., American Express, Ally Financial.

- Major regional institutions like US Bancorp, Capital One, PNC Financial and Charles Schwab, which have assets greater than $250 billion, or more than  $75 billion in cross-border activity or non-bank assets, would potentially have have a lower liquidity standard to meet. However, such banks would still face yearly stress tests.

- Globally systemic banks based in the United States would not have any changes in the regulatory requirements. Those include JPMorgan Chase & Co., Bank of America Corp , Citigroup Inc., Goldman Sachs Group Inc. and Morgan Stanley.

"The proposals would prescribe materially less stringent requirements on firms with less risk, while maintaining the most stringent requirements for firms that pose the greatest risks to the financial system and our economy," Fed Chairman Jerome H. Powell said.

The Fed says it wants to propose a separate rule for U.S. subsidiaries of foreign banks “in the near future.” It is also working with the Federal Deposit Insurance Corporation on revising certain parts of  the “living wills” – a regulatory condition that requires big banks to submit plans for winding down business in case of failure.

The latest proposals from the Fed seem to attempt a loosening of the Dodd-Frank regime, and follows the law passed by Congress in May that ordered the Fed to reduce regulatory burdens on community and regional lenders.