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From Banking and Finance Law Daily, August 20, 2018

Senators request relief from enhanced supervision for midsized banks

By Nicole D. Prysby, J.D.

A letter to Federal Reserve Board Vice Chairman Randal K. Quarles, sent by a group of U.S. senators, urges the Fed to "provide immediate regulatory relief for regional banks that do not pose a systemic risk to our financial system." Senate Banking Committee member David Perdue’s (R-Ga) press release notes that the letter’s other signors include Senators Bill Cassidy (R-La), Jim Inhofe (R-Okla), James Lankford (R-Okla), Jerry Moran (R-Kan), Thom Tillis (R-NC), and Mike Rounds (R-SD).

The letter expresses concern with the Fed’s July statement that banks with $100 billion to $250 billion in total assets may not receive substantive relief from the enhanced prudential regulations in the recently enacted Economic Growth, Regulatory Relief, and Consumer Protection Act. The Act raised the asset threshold for enhanced prudential standards under the Dodd-Frank Act from $50 billion to $100 billion in total assets immediately. For banks with total assets between $100 billion and $250 billion, relief is automatically granted 18 months after enactment. The law provides the Fed with the authority to allow enhanced prudential standards to be re-imposed when there is a risk to financial stability.

The senators are concerned by recent remarks by Fed officials indicating that it will continue to apply Comprehensive Capital Analysis and Review stress tests and other enhanced supervision regulations designed for systemically important financial institutions on non-systemic financial companies. The senators object to this course of action, stating that Congress did not ask the Fed to create a third layer of treatment for banks above and below $100 billion in total assets. Rather, it empowered the Fed to tailor regulations to address individual risk profiles of banks so that all non-systemic banks are treated in accordance with their risk profiles. The senators indicated support for the Fed’s use of its systemic risk indicator score data to identify appropriate tailoring. The senators also suggested that the Fed give comparable regulatory treatment to intermediate holding companies for international banks as the treatment given to U.S. banks of similar size and risk.

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