Regulators call for simpler capital rules, easier reporting standards

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WASHINGTON — Banking regulators are calling for a raft of regulatory changes, including streamlining capital, reporting and appraisal rules in order to reduce compliance burden.

The agencies detailed their recommendations Tuesday in a report under the Economic Growth and Regulatory Paperwork Reduction Act, which requires regulators to identify outdated or redundant regulations every 10 years that can be updated or discarded.

Federal Reserve Board Gov. Daniel Tarullo, the agency’s point person on regulatory matters, reiterated in a letter to lawmakers that regulatory burden should be borne proportionately to a bank’s size and risk to the financial system. That concept can be further extended to regulators’ supervisory approaches to small banks, he said.

“While EGRPRA focuses on how to reduce the burden of regulations promulgated by the agencies, I believe there is need for a complementary effort to streamline the supervision of community banks,” Tarullo said. “I have asked the FFIEC to undertake a project along these lines. I hope and expect that it can result in significantly more efficient examination processes that will reduce compliance costs for community banks without compromising safety and soundness and other statutory goals.”

The report, which was issued by the Federal Financial Institutions Examination Council, outlines several areas that warrant further examination and regulatory change, centered in broad categories.

With respect to capital requirements — particularly those related to commercial real estate loans — the regulators said further investigation is needed to clarify which CRE loans are considered “high volatility” and which are not, a designation that means the difference between carrying a 100% capital risk weight and a 150% capital risk weight.

The report also calls for “simplifying the current regulatory capital treatment for mortgage servicing assets” as well as treatment of deferred tax assets and certain regulatory capital instruments.

Overall, regulators said they want to simplify the call report process — a move that is already underway — but noted that changes in the capital regulations “may significantly reduce the difficulty of completing the call report’s capital schedule, which was viewed as particularly burdensome" by bankers.

Regulators also unveiled several proposed changes with respect to appraisal requirements for certain kinds of loans. The agencies said they will raise the threshold for appraisal requirements for CRE loans to $400,000 from $250,000. They will also consider allowing waivers from legal requirements that certain loans be appraised and would allow appraisers from neighboring states to perform appraisals on a temporary basis in order to address shortages in rural areas.

The report also noted that bankers have called for changing the thresholds to file suspicious activity and currency transaction reports, but said regulators would have to defer that issue to the Financial Crimes Enforcement Network, an office within Treasury.

“Fincen … is the delegated administrator of the BSA that issues regulations and interpretive guidance, and as such, any changes to the SAR or CTR requirements would require a change in Fincen’s regulations,” the report said, referring to the Bank Secrecy Act.

The FFIEC and its members began undertaking the EGRPRA review in June 2014. During the first round of EGRPRA review — which concluded in 2016 — banks were left disappointed with the regulators’ conclusions, which they felt ignored their more pressing concerns, including the scope of exams.

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