The Federal Reserve on Wednesday released a proposal to loosen rules on U.S. banks with less than $700 billion in assets, exempting dozens of firms from stricter federal oversight under the Dodd-Frank Wall Street reform law.
The Fed’s proposal would create four tiers of regulation tailored to the size of a U.S. bank and its international operations. The plan does not reduce rules for the nine largest American firms, considered “globally systemically important banks” (GSIBs), but eases capital, liquidity and stress-testing requirements for some regional powerhouses.
The proposed rollback, eagerly awaited by the financial sector, comes fives month after President Trump signed a bipartisan bill directing the Fed to loosen rules on banks with less than $250 billion in assets and consider looser oversight for firms above that threshold.
Federal Reserve Chairman Jerome Powell called the proposal “a significant and tailored reduction in compliance burdens” that would protect the “gains we have made in building a safer and more resilient financial system.”
The Fed voted 3 to 1 to advance the plan at a Wednesday meeting, a rare partisan vote for an agency that aims to form a consensus among its members. Powell, Vice Chairman Richard Clarida and Vice Chairman of Supervision Randal Quarles — all Republicans — voted in favor, while Fed Gov. Lael Brainard, a Democrat, opposed it.
Brainard said that while she supports efforts to loosen rules for banks with less than $250 billion in assets, she objects to the proposal’s relief for banks above that threshold. She argued that the proposed revamp “raises the risk that American taxpayers again will be on the hook” for disastrous financial sector losses.
“I see little benefit to the institutions or the system from the proposed reduction in core resilience that could justify the increased risk to financial stability and the taxpayer,” Brainard said.
The Fed’s rewrite would divide U.S. banks into four tiers: GSIBs; banks with more than $700 billion in assets; banks with between $700 and $250 billion in assets; and banks with between $100 and $250 billion in assets.
Firms with less than than $100 billion in assets were exempted from strict Fed oversight in May by the Dodd-Frank rollback law signed by Trump.
Under the Fed plan, U.S. banks in the $100 to $250 billion asset range would be stress-tested by the central bank once every two years instead of annually. Those banks would also be exempted from company-run stress tests and the “liquidity coverage ratio,” which requires firms to hold a certain amount of top-grade assets that could easily be turned to cash.
Banks within that threshold include close to a dozen major U.S. banks and financial services firms: BB&T Corp., SunTrust Inc., American Express, Ally Financial, Citizens Financial, Fifth Third, KeyCorp, Regions Financial, M&T Bank, Huntington and Discover.
Larger firms in the $700 to $250 billion range would still be subject to annual Fed stress tests, but would only need to run internal stress tests once every two years. Those banks, which include U.S. Bancorp, PNC Financial, Capital One and Charles Schwab, would also face looser liquidity rules and be exempted from capital rules meant to safeguard banks with heavy exposure to other massive or international firms.