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The Federal Reserve Board issued a proposal Friday to require the largest and most systemically risky banks to issue additional capital and unsecured debt to absorb losses in a failure, a move that experts say could ultimately make the banks less complex and easier to resolve in a crisis.
October 30 -
The Fed finalized a rule increasing an asset-size threshold that lets smaller banks finance deals with up to 75% in debt. That benefit, along with an exemption from Basel III capital rules, could prompt some bankers to second-guess short-term growth as they weigh their options.
May 29 -
Community banks should consider agreeing to higher capital standards in return for a simpler capital compliance regime, Federal Reserve Board Gov. Daniel Tarullo suggested Thursday.
April 30
WASHINGTON — Small banks are being crushed under the weight of regulations associated with the Dodd-Frank Act, Federal Reserve Chair Janet Yellen acknowledged Thursday, but regulators are working to reduce that burden.
"Small community banks really are suffering from regulatory overload," Yellen said during a Joint Economic Committee hearing. "We recognize how high the burdens are on community banks, and for our own part we are heavily focused on trying to tailor our regulations … [to] make life better for community banks, especially those that are well managed and have adequate capital."
Yellen cited the Fed's decision earlier this year to raise the small bank holding company asset threshold from $500 million to $1 billion, exempting banks under that level from certain capital rules. She also said the agency is trying to do more of its supervisory activities on smaller banks off-site and targeting exams toward riskier areas.
The Fed chair noted that the banking regulators have been engaged for more than a year in a once-a-decade review of its rules related to capital, banking operations and the Community Reinvestment Act. That review, required under the Economic Growth and Regulatory Paperwork Reduction Act, will likely culminate in a report to Congress that will contain "a number of things that … will enable us to take steps that will be helpful," Yellen said.
Community banks have long bristled at what they view as an undue regulatory burden placed on them by Dodd-Frank, requiring smaller banks to comply — and demonstrate compliance — with capital, trading and business practice rules that are more appropriately aimed at larger and more complex institutions. The Fed and other bank regulators have said that they tailor their rules in such a way as to make that burden as light as possible, but concerns persist that rules are making small banks less profitable and are exacerbating the years-long trend toward consolidation.
Yellen further illustrated that push for tailoring in describing two of the Fed's most recent rules, the global systemically important bank surcharge rule finalized in July and the recently proposed total loss-absorbing capacity rule. She said both rules were specifically aimed only at the eight largest U.S. banks — the banks that pose the largest systemic risk and that Congress had in mind when drafting Dodd-Frank.
"In our regulations we are trying to make sure that community banks — that not systemic, are not responsible for financial crisis — are not going to be hit with all of those regulations," Yellen said. "But I do think it is critically important that the very largest, the most systemic organizations need to be safer and sounder. They need to have more capital; they need to have more liquidity."
