(Adds details from speech)
By Emily Stephenson and Karen Pierog
WASHINGTON/CHICAGO May 8 A top U.S. Federal
Reserve official on Thursday called on regulators to revamp a
variety of new bank rules, including the way capital minimums
are set for big firms and exempting mid-sized banks from some
Fed Governor Daniel Tarullo, the Fed's point person on
financial regulation, said a "rationalization" of some rules
would reduce costs for banks but still achieve the goals of the
2010 Dodd-Frank Wall Street oversight law.
"It is also motivated by the advantage to be gained if
supervisory resources can be deployed where their payoff in
achieving well-specified regulatory aims will be highest,"
Tarullo said in a speech at a bank conference in Chicago.
The Dodd-Frank law called for a host of new rules for banks
to make them safer after the 2007-2009 financial crisis.
The law attempted to tailor its requirements so that the
toughest changes fell on the biggest, riskiest firms. But
Tarullo said some tweaks could be helpful.
For example, most of the new rules do not apply to banks
with less than $10 billion in total assets, known as community
Tarullo said regulators could amend their rules to
explicitly exempt community banks from requirements such as the
Volcker rule, which bans banks from making risky bets with their
He also said Dodd-Frank's $50 billion asset threshold for
so-called stress tests, which weigh banks' ability to withstand
another crisis, might include banks that are not big or risky
enough to warrant the complex testing.
"Requirements such as resolution planning and the quite
elaborate requirements of our supervisory stress testing process
do not seem to me to be necessary for banks between $50 billion
and $100 billion in assets," Tarullo said.
Thirty big banks participated in the latest round of stress
tests, and five were not allowed to move forward with plans to
pay dividends as a result of their performance.
For the largest firms, those stress tests might be a better
way to judge whether banks have sufficient equity cushions than
the current system of risk-weighted requirements agreed upon by
international regulators, Tarullo said.
U.S. regulators are implementing the so-called Basel III
agreement for higher capital, which allows banks to determine
their minimum needs in part by judging the riskiness of their
Tarullo said this method is backward-looking and
ineffective. He said the Fed's stress tests represent a better
"risk-sensitive basis" for setting capital requirements than the
Regulators already have a track record of going beyond
international requirements for U.S. banks. In April, U.S.
officials agreed on a leverage ratio of 5 percent for bank
holding companies and 6 percent for insured subsidiaries. The
global agreement was for a 3 percent ratio.
(Reporting by Emily Stephenson; Editing by Chizu Nomiyama)