FDIC Vice Chair Urges Lawmakers to Adopt Regulatory Relief Criteria for Community Banks (with Lofchie Comment)

In a speech at an interagency meeting on economic growth and paperwork reduction, FDIC Vice Chair Thomas Hoenig urged lawmakers to ease the regulatory burden on community banks. He stressed the importance of tailoring regulation to bank activities and complexity rather than their asset size.

Mr. Hoenig recommended instituting an objective set of criteria for eligibility. Under these criteria, a bank would be eligible for regulatory relief if (i) it held no trading assets or liabilities; (ii) it held no derivative positions other than interest rate and foreign exchange derivatives; (iii) the total notional value of all its derivatives exposures – including cleared and non-cleared derivatives – was less than $3 billion; and (iv) it maintained a ratio of Generally Accepted Accounting Principles equity-to-assets of at least 10%.

Determining eligibility for regulatory relief based on these specific criteria rather than asset size, he said, would reflect the "longstanding business model of traditional commercial banks." Because the criteria are objective, he added, their enforcement would be "less of an imposition on the banks," since they would use offsite call report monitoring and fall within the regular examination process.

"The public needs commercial banks to provide credit to small businesses and consumers across the country without the burdensome constraints of misdirected regulation," Mr. Hoenig said.

Lofchie Comment: More and more, regulators are stating publicly that rules promulgated under Dodd-Frank are having damaging effects on the financial system. Regulation of small banks are not the only thing that should be revisited. The effects of Dodd Frank should be revisited by both legislators and regulators. Even if it is not acceptable yet to say so publicly, a fair amount of the regulation of large banks is not sensible either.

See: Mr. Hoenig's Speech on Regulatory Relief.Related news: FRB and FDIC Provide Joint Feedback on Non-Banks' Resolution Plans (July 28, 2015).