It would be worthwhile to have a policy discussion of statutes that might be amended explicitly to exclude community banks [those with under $10 billion in assets] from their coverage. In my view, two candidates would be the Volcker rule and the incentive compensation requirements in section 956 of Dodd-Frank. The concerns addressed by these statutory provisions are substantially greater at larger institutions.
Tarullo also questioned the Dodd-Frank Act’s imposition of financial stability regulation — stress tests, capital plan submissions, resolution plans and a form of the Basel III liquidity coverage ratio — on banks with over $50 billion in assets. He explained:
Experience to date suggests to me, at least, that the line might better be drawn at a higher asset level — $100 billion, perhaps. Requirements such as resolution planning and the quite elaborate requirements of our supervisory stress testing process do not seem to me to be necessary for banks between $50 billion and $100 billion in assets.
ABA welcomed Tarullo’s remarks and thanked him for recognizing the problems inherent in applying arbitrary $10 billion and $50 billion asset thresholds in statute and regulation. ABA President and CEO Frank Keating said:
We look forward to working with regulators and legislators on efforts to replace these arbitrary triggers with standards that are more closely tied to identifiable risks. Moving from an arbitrary to a more tailored supervisory program will improve our safety and soundness supervision, and will more effectively address risks to America’s financial system.
Tarullo’s suggestions came in the context of broader remarks on the evolution of prudential regulation in the United States as supervisors have added financial stability oversight to their portfolio of responsibilities.
Read the speech.