Fed finalizes rules to reduce compliance for less risky banks

The Federal Reserve Board finalized rules last week that reduce compliance requirements for banks with less risk while maintaining more stringent requirements for the largest and most complex banks.© Shutterstock Banks with $100 billion or more in total assets would be separated into four different categories based on asset size, cross-jurisdictional activity, reliance on short-term […]

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The Federal Reserve Board finalized rules last week that reduce compliance requirements for banks with less risk while maintaining more stringent requirements for the largest and most complex banks.

© Shutterstock

Banks with $100 billion or more in total assets would be separated into four different categories based on asset size, cross-jurisdictional activity, reliance on short-term wholesale funding, nonbank assets, and off-balance sheet exposure. Firms in the lowest risk category will have reduced compliance requirements, owing to their smaller risk profile. As the risk of a firm increases and it moves into a new risk category, its requirements will increase.

The rules are consistent with changes made by the Economic Growth, Regulatory Relief, and Consumer Protection Act.

“Our rules keep the toughest requirements on the largest and most complex firms,” Fed Board Chair Jerome 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.”

The Fed Board says the changes 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.

“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 rules were jointly developed with the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency. They will be effective 60 days after publication in the Federal Register.

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