Regulators ask Congress to give small banks a break

Posted June 22, 2017 9:31 a.m. EDT

Seeking to provide some regulatory relief to community banks and other small financial institutions, bank regulators are asking Congress to consider several changes to the 2010 Dodd-Frank financial reform laws.

The regulators, which include the Federal Reserve and Federal Deposit Insurance Corp., sent dozens of pages of testimony to lawmakers ahead of a Senate Banking Committee hearing Thursday on how to improve economic growth by loosening regulations on smaller-sized banks.

In the testimony, Federal Reserve Governor Jerome Powell noted that many smaller banks have faced higher costs in order to meet the complex requirements imposed by Dodd-Frank. "We should continue to tailor our requirements to the size, risk, and complexity of the firms subject to those requirements," he wrote.

Powell advised Congress to consider exempting smaller firms from the so-called Volcker Rule, which bans banks from taking risky bets with taxpayer money. He said the Fed supports increasing the $50 billion asset threshold set in the 2010 law so that the rule would only apply to the largest banks. He did not specify what the cutoff should be.

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President Trump's acting Comptroller of the Currency Keith Noreika suggested lawmakers reduce "duplication and redundancy" in the federal banking laws. He noted that such redundancies cost community banks more, especially when they have to comply with rules from multiple regulators.

"Congress could foster economic growth by reducing regulatory overlap and increasing coordination within the federal financial regulatory framework," said Noreika in prepared testimony.

The testimony by the regulators at the five agencies comes less than two weeks after the Trump administration unveiled a 150-page report on how regulators and Congress could address regulations that they claim crimp banks' ability to lend and stifle economic growth.

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The report, which was released by the Treasury Department, recommended giving the president the power to fire the head of the Consumer Financial Protection Bureau, giving Treasury greater power to oversee bank regulators, requiring regulatory agencies to analyze the cost of new rules and stripping the Federal Deposit Insurance Corp. of its responsibility to oversee banks' plans for how they should be unwound if they fail.

The report also endorsed the idea of forcing the Fed to make its stress tests of the largest U.S. banks more transparent. Stress tests are simulations regulators run to gauge a bank's ability to weather a downturn.

Powell said the Fed was committed to improving transparency of the stress test process and hinted of early plans to disclose more information publicly.

For the most part, the regulators embraced the Trump administration's plans to revamp the post-crisis rules, while preserving the integrity of the law to protect the financial system from another crisis.

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"We should assess whether we can adjust regulation in common-sense ways that will simplify rules and reduce unnecessary regulatory burden without compromising safety and soundness," Powell said in prepared testimony.

Still, regulators did not agree with all of the administration's recommendations.

FDIC Chairman Martin Gruenberg said both his agency and the Fed should remain involved in reviewing the largest banks so-called living will plans in the event of a collapse in his testimony. Among Treasury's recommendations was to remove the FDIC from the process.

Both Powell and Gruenberg did support however changing the frequency of the living will process from every year to two.