Federal Reserve Governor Daniel Tarullo recently defended the post-financial crisis regulatory regime for the nation’s largest banks and said regulators should be cautious when determining whether to roll back regulatory provisions. Speaking at a conference in Washington, D.C., he argued that since the crisis “the progressive implementation of this capital regime has substantially increased the resiliency of the largest banks.” However, he added that regulators should be continually assessing the efficacy and efficiency of the current regulatory framework and making adjustments as lessons are learned and new data becomes available.
In particular, regulators should consider the effects of regulation on smaller institutions, Tarullo said, acknowledging the significant compliance burden that community banks in particular have faced since the financial crisis. He voiced support for revising the tiered supervision structure to ensure thresholds are set at appropriate levels, and for providing exemptions for community banks under $10 billion from regulations such as the Volcker rule or incentive compensation rules. When considering regulatory change, however, he stressed that the Fed “will not weaken the essential elements of the existing regime that guard against another financial crisis.”
Looking ahead, Tarullo said that the Fed will continue to focus on ensuring that the largest banks have solid resolution plans and are appropriately structured to facilitate orderly resolution in the event of failure. In addition, the agency will develop metrics to help determine firms’ vulnerabilities to various economic shocks, increase its efforts to understand the systemic risk posed by U.S. branches of foreign banks and monitor new systemic threats that could arise in the shadow banking sector.
Read Tarullo's speech.