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Friday, March 20, 2015

Regulators Debate Need for Threshold Shifts at Hearing

Top regulators testified before the Senate Banking Committee on whether Dodd-Frank Act supervisory thresholds for large banks might need to be revisited. At the hearing, Federal Reserve Governor Daniel Tarullo suggested setting the threshold for Volcker Rule compliance at $10 billion in assets, noting that “the cost is probably not worth whatever incremental prudential benefits might be gained at these small banks.”

Tarullo also repeated his previous call for Congress to consider raising the requirement for enhanced oversight and stress tests for banks with over $50 billion. Stress testing and associated internal modeling “entail substantial expenditures of out-of-pocket and human resources [that] can be a considerable challenge for a $60 billion or $70 billion bank,” Tarullo said, adding that the regulatory benefits of stress testing these banks are “relatively modest, and we believe we could probably realize them through other supervisory means.”

However, FDIC Chairman Martin Gruenberg noted that even large regional banks with “traditional banking business models” have an “operational complexity [that] presents challenges that community banks do not.” Meanwhile, Comptroller of the Currency Thomas Curry defended his agency’s approach to supervising large banks under existing Dodd-Frank requirements. The committee’s ranking member, Ohio Democrat Sherrod Brown -- who will speak at ABA’s Government Relations Summit next week -- also said that Dodd-Frank “struck a pretty good balance.”

ABA has long pointed out the problems with Dodd-Frank’s arbitrary asset-based thresholds and other regulations and emphasized the growing need for reform and tailored regulation. The association will continue its efforts to encourage consensus among policymakers on solutions to the unnecessary burdens that these arbitrary thresholds cause.

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