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Monday, November 10, 2014

Fed’s Tarullo Fleshes Out ‘Tailored Regulation’ Ideas

Congress should allow the Federal Reserve to increase its small bank holding company threshold for regulatory relief, Fed Governor Daniel Tarullo said at a community bank conference in Chicago. The threshold, set at $500 million since 2006, should go up to $1 billion, he explained, providing coverage for 89% of bank holding companies.

ABA has long supported bipartisan legislation in Congress to raise the small bank holding company threshold. Tarullo’s remarks came in a speech explaining the Fed’s approach to tailoring regulation to be appropriate for different bank sizes and business models. He repeated an earlier call for legislation to exempt community banks from the Volcker Rule and the incentive compensation requirements in Section 956 of the Dodd-Frank Act. He explained:

Many rules and examinations that are important for institutions that are larger, more complex, or both, do not make sense in light of the nature of the risks to community banks. We must avoid importing measures from large bank oversight that make relationship banking more costly.

Tarullo also reiterated that regulators should not practice “supervisory trickle down,” in which examiners apply large bank requirements and expectations to smaller banks. He acknowledged concerns that examiners have urged banks not subject to stress tests to plan for them and stated that stress tests and capital planning “do not apply to community banking organizations, either explicitly or implicitly. [T]here is simply no reason for examiners to make a $5 billion bank begin to develop capital stress testing capabilities.”

Read the speech.

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