WASHINGTON/CHICAGO 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 rules.
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 banks.
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 own money.
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 assets.
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 international accord.
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)