FSOC State Banking Rep Urges "Right-Sizing" of Bank Regulation

North Dakota Commissioner of Financial Institutions and FSOC State Banking Supervisor Representative Lise Kruse called for "right-sizing" the regulatory framework for banks.

At a Financial Stability Oversight Council meeting, Ms. Kruse said that federal supervisory mandates have placed disproportionate burdens on community and mid-sized banks that do not pose the same systemic risks as the largest financial institutions. She argued that static asset-based thresholds and rigid concentration-based requirements have distorted competition and limited the ability of smaller banks to innovate or support resilient communities. She added that state supervisors see the cumulative impact of these requirements as driving consolidation in the sector, with community banks forced to merge, sell, or cut back.

Ms. Kruse argued that the regulatory framework should be recalibrated to reflect economic growth, business models, and proven risk management, while also providing greater flexibility for mergers, new charters, and innovation in digital assets like stablecoins and tokenized deposits. She stressed that stability and predictability in federal policy are essential, warning that abrupt shifts after crises or elections place heavy compliance burdens on banks. She noted that federal regulators must be adequately resourced to implement changes effectively and avoid shifting responsibilities to states.

Ms. Kruse underscored the need for strong state–federal coordination and urged that state authorities remain central in shaping a tailored oversight framework.