Senate Banking Committee Holds Hearing to Examine Regulatory Regime for Banks
The Senate Committee on Banking, Housing and Urban Affairs held a hearing, titled "Examining the Regulatory Regime for Regional Banks," in which witnesses discussed "tiered" approaches to bank regulation and the threshold in Dodd-Frank Section 165 for the application of enhanced prudential standards to bank holding companies.
Comptroller of the Currency Thomas Curry, Federal Deposit Insurance Corporation Chair Martin Gruenberg and Board of Governors of the Federal Reserve System ("FRB") Governor Daniel Tarullo testified at the hearing.
Governor Tarullo noted that the Dodd-Frank Act adopts a "tiered" approach to bank regulation, at which different prudential regulations apply for regulated entities of different asset sizes. In response to concerns expressed by Representative Shelby that such an approach may lead to arbitrary results, Tarullo defended Dodd-Frank's "tiered" approach while conceding that such thresholds may appropriately be modified in light of experience, and stressed the importance of maintaining regulatory discretion in applying heightened prudential standards to large financial institutions.
In particular, Governor Tarullo discussed the FRB's implementation of Section 165 in his written testimony. Even though all firms with $50 billion or more in assets are subject to basic enhanced prudential standards, he explained, the eight U.S. bank holding companies that have been designated as global systemically important banking organizations will be subject to an additional set of regulatory requirements.
He noted that an enhanced supplementary leverage ratio, "equally applicable to all eight firms," has already been adopted, and that the FRB is working on two requirements that "will vary in stringency even among these eight firms, based on their relative systemic importance." One of these requirements is a set of risk-based capital surcharges about which the FRB issued a notice of proposed rulemaking late last year. The other, he added, is a long-term debt requirement "designed to support effective orderly resolution processes," about which the FRB is expected to issue a notice of proposed rulemaking in the coming months.
See: Governor Tarullo's Written Testimony; Senate Banking Committee Hearing Information; Comptroller Curry's Written Testimony; FDIC Chair Grudenberg's Testimony; Article in Bloomberg Business. Related news: Senate Subcommittee on Investigations Releases Report on Bank Involvement with Physical Commodities (with Cammarn Comment) (November 19, 2014) FRB Proposes Rules to Increase Capital Positions of Largest U.S. Bank Holding Companies (with Lofchie Comment) (December 9, 2014).