Regulatory relief for some bigger banks could be on the way, senior Fed official says

  • Fed Governor Randal Quarles tells a Senate committee that the central bank is continuing to look at ways to improve the regulatory process.
  • Among the recommendations is to "differentiate" standards for banks that don't pose systemic dangers.
  • One possible change would be giving banks with more than $250 billion in assets less stringent liquidity requirements.
Randal Quarles
Source: CNBC
Randal Quarles

Banks with more than $250 billion in assets could see regulatory relief as the Federal Reserve continues to review regulations, the central bank's vice chair for supervision of financial institutions said Tuesday.

Speaking to members of the Senate, Fed Governor Randal Quarles said size alone shouldn't be the determining factor in how banks are governed. Instead, he said, a variety of factors that focus on risk profile and systemic danger should be used.

Those with more than $250 billion but not posing a threat to the system are part of a review into how post-financial crisis regulations should be tailored to fit the current climate.

Quarles addressed the Senate Committee on Banking, Housing and Urban Affairs in a speech focusing on the Economic Growth, Regulatory Relief and Consumer Protection Act.

"Asset size should be only one among several relevant factors in a tailoring approach," he said in his prepared remarks. "We continue to evaluate additional criteria allowing for greater regulatory and supervisory differentiation across banks of varying sizes, and the Act reflects similar goals."

The Fed was charged with re-examining its approach to regulation after the crisis. Legislation passed since then restricted banks on risk and ordered enhanced supervision for those deemed systemically important.

Over the years, though, regulators have taken another look at which banks should be subject to heightened scrutiny. Recent efforts, particularly since President Donald Trump took office, have focused on loosening the burden for regional and community banks.

"The Board has placed our highest priority on issuing a proposed rule on tailoring enhanced prudential standards for banking firms with assets between $100 billion and $250 billion," Quarles said. For that group, the Fed is looking to determine when and why banks should expect enhanced regulations, "using objective measures that account for the relative complexity and interconnectedness among large banks."

Moreover, he said that banks with more than $250 billion require "differentiation" from those on the list of 30 global systemically important banks. He cited liquidity requirements as one example of how the rules could change.

"Considering the greater economic impact of the failure of larger banks versus smaller banks, it seems appropriate that tailoring supervision and regulation of large banks should not ignore size, but consider it as one factor among others," Quarles said.