Fed Proposes Tailored Supervisory Approach for Largest Banks

November 1, 2018

The Federal Reserve yesterday issued its highly anticipated proposed framework for applying enhanced prudential standards to banking firms with $100 billion or more in assets, as required by S. 2155, the regulatory reform law.

The Fed proposed to establish four categories of standards that seek to reflect the risks of firms in the group. The agency outlined the risk-based indicators it would use to determine the applicability of standards, including size, cross-jurisdictional activity, weighted short-term wholesale funding, nonbank assets and off-balance sheet exposure.

In addition, the Fed released a second joint proposal with the OCC and FDIC that would tailor requirements under the regulatory capital rule, the Liquidity Coverage Ratio and the proposed Net Stable Funding Ratio rule for banks in each group. The proposal does not apply to foreign banking organizations or intermediate holding companies of foreign banking organizations, but the Fed signaled it will issue a separate proposal in the weeks ahead on how it will supervise these institutions.

ABA welcomed the proposal. “By advancing today’s proposed rulemakings, the Federal Reserve and the other banking agencies have taken an important step toward rightsizing bank regulations and following through with Congress’ intent in this year’s bipartisan regulatory reform law,” said ABA President and CEO Rob Nichols. “These changes would strengthen supervision with an improved focus on risks, while allowing larger institutions to better meet the needs of their customers and communities, which will help further drive economic growth.” Read the Fed's proposal. Read the joint agency proposal.

Comments on the proposal are due Jan. 22, 2019.



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