WASHINGTON–The Federal Reserve has announced a loosening of regulations for banks between $100 billion and $700 billion in assets, a category into which 16 financial institutions fall.
The rollback is part of the Trump administration’s plans to reduce rules, including the Economic Growth, Regulatory Relief and Consumer Protection Act, passed earlier this year, which also affected credit unions.
Among the banks affected by the lightened regulations are U.S. Bancorp, Capital One and American Express. There are eight banks in the country with $700 billion or more in assets that are not affected by the changes.
“The Fed’s deregulation comes at a time when banks do not seem to be weighed down by regulation. Bank profits are surging, and they are making large payouts to shareholders in the form of dividends and stock buybacks,” noted the New York Times in its analysis.
Vice Chairman Responds
But Randal K. Quarles, vice chairman of the Fed, said, “I am hopeful that firms will see reduced regulatory complexity and easier compliance with no decline in the resiliency of the U.S. banking system.”
The biggest change under the new Fed proposal relates to what’s known as the liquidity capital ratio, which is aimed at ensuring banks have sufficient cash on hand in the event of a crisis. The new proposal would allow 11 banks, including large regional lenders like SunTrust and BB&T, to stop complying with the ratio altogether, and it relaxes the ratio for four other firms. The Fed would still require the banks that get to drop the ratio to comply with other liquid standards, noted the Times analysis.
Other changes in the proposal include the tests the Fed performs on banks once a year to assess whether they have the financial strength to make it through a financial and economic shock. Under the proposals, 11 banks will be subject to tests once every two years.
What Banks Didn’t Get
What didn’t the banks get from the Fed?
No bank with over $100 billion in assets will escape the stress tests altogether, according to the Fed plan. The Fed also did not relax rules regarding so-called “living wills,” but indicated changes to those regulations will be coming, as well.
NCUA currently provides an extended exam cycle of 18-months to credit unions with assets less than $1 billion, among other criteria. Both credit union trade groups have been encouraging the NCUA to use its authority to return all healthy and well-run credit unions to an extended exam cycle, regardless of asset size.