This week, the Federal Reserve Board finalized rules that tailor its regulations for domestic and foreign banks to more closely match their risk profiles. The rules reduce compliance requirements for firms with less risk while maintaining the most stringent requirements for the "largest and most complex banks."
"Our rules keep the toughest requirements on the largest and most complex firms," Federal Reserve Board Chair Jerome H. Powell said. "In this way, the rules maintain the fundamental strength and resiliency that has been built into our financial system over the past decade."
“A primary purpose of S. 2155 was to spur economic growth by right-sizing regulations for financial institutions, including community banks and credit unions, midsized banks, and regional banks so they can redirect important financial resources to individuals, households and businesses,” said Mike Crapo, Chairman of the U.S. Senate Committee on Banking, Housing and Urban Affairs. “I applaud the Federal Reserve for finalizing these rules and striking a more appropriate balance between preserving safety and soundness and tailoring regulations in a way that reflects a bank’s risk profile.
According to the Federal Reserve Board, the final rules simplify the proposals by applying liquidity standards to a foreign bank's U.S. intermediate holding company (IHC) based on the risk profile of the IHC, rather than on the combined U.S. operations of the foreign bank. Additionally, for larger firms, the final rules apply standardized liquidity requirements at the higher end of the range that was proposed for both domestic and foreign banks.
"The final rules maintain our objective from the proposals: develop a regulatory framework that more closely ties regulatory requirements to underlying risk," Vice Chair for Supervision Randal K. Quarles said.
The Board estimates that the changes in the aggregate will result in a 0.6 percent decrease in required capital and a reduction of 2 percent of required liquid assets for all banks with assets of $100 billion or more. The rules do not reduce capital or liquidity requirements for firms in the highest risk categories, including U.S. global systemically important banks.