The Federal Reserve proposed a set of rules Wednesday that would "significantly reduce regulatory compliance requirements" for smaller banks, while keeping the stringent requirements in place for the nation's biggest banks.
The Fed's proposed framework establishes four bank categories based on size, each with a different risk profile.
The smallest banks in the framework — those with between $100 billion and $250 billion in assets — would no longer be required to conduct company-run stress tests, and their supervisory stress tests would be moved to a two-year cycle, rather than an annual one, according to a Fed announcement. "These reduced requirements would reflect the lower risk profile of these firms," the Fed stated.
Firms with $250 billion to $700 billion in total consolidated assets, or material levels of the other risk factors, make up the next risk category. Those firms would have their standardized liquidity requirements reduced but remain subject to "a range of enhanced liquidity standards." The firms would also be required to conduct company-run stress tests on a two-year cycle, rather than semiannually, and remain subject to annual supervisory stress tests, the Fed said.
The third and fourth categories are for banks with assets of at least $700 billion or with $75 billion cross-jurisdictional activity, and those considered global systemically important banks. These banks would not see any changes to their capital or liquidity requirements, according to the Fed.
"The proposals before us would prescribe materially less stringent requirements on firms with less risk, while maintaining the most stringent requirements for firms that pose the greatest risks to the financial system and our economy," Fed Chairman Jerome H. Powell said in his opening statement to the Federal Reserve Board. "And the proposals seek to maintain a middle ground for those firms that are clearly in the middle. Congress and the American people rightly expect us to achieve an effective and efficient regulatory regime that keeps our financial system strong and protects our economy, while imposing no more burden than is necessary."
Comments on the proposal will be accepted through Jan. 22, 2019.