July 18, 2018 / 7:30 PM / a month ago

Federal Reserve should ease rules for largest non-global U.S. banks: official

WASHINGTON (Reuters) - The U.S. Federal Reserve should consider formally easing the regulatory framework for U.S. banks that have more than $250 billion in assets but are not global players, a top Fed official said on Wednesday.

Randal Quarles, Federal Reserve board member and Vice Chair for Supervision, takes part in a swearing-in ceremony for Chairman Jerome Powell at the Federal Reserve in Washington, U.S., Febuary 5, 2018. REUTERS/Aaron P. Bernstein

The comments by Fed Vice Chair Randal Quarles will be cheered by the country’s three super-regional lenders PNC (PNC.N), Capital One (COF.N) and U.S. Bancorp (USB.N), which worried they would be hurt by a rewrite of the 2010 Dodd-Frank law passed by Congress in May that helped their smaller rivals.

That legislation eased oversight of U.S. banks with less than $250 billion in assets but did little for the largest U.S. lenders. Super-regional players were concerned that the changed regulations put them at a disadvantage by lumping them in with the global behemoths while giving their slightly smaller competitors a leg-up.

They lobbied successfully for the law to direct the Fed, the country’s top banking regulator, to tailor regulations for firms above the $250 billion asset threshold but that are not globally systemically important banks or ‘G-SIBs’.

In a speech on Thursday, Quarles said the regulator should quickly act on that direction and review the rules for super-regional banks, with the aim of devising a framework that clearly differentiates them from G-SIBs.

Quarles said the Fed should move to an expedited rule-proposal that could, for example, require less frequent “stress-testing” of super-regional banks, allow more flexible models for capital calculations and more finely calibrated liquidity requirements.

“The supervision and regulatory framework for these firms should reflect that there are material differences between those firms that qualify as U.S. G-SIBs and those that do not,” Quarles told a banking conference in his home state of Utah.

“For example, we know that non-G-SIBs with more than $250 billion in assets are generally less complex and less interconnected than U.S. G-SIBs and thus pose relatively less risk to financial stability,” he added.

Under the administration of President Donald Trump, who has pledged to cut red tape in order to stimulate bank lending, the Fed has made several proposals to change bank rules so as to make them more sensitive to banks’ individual risk profiles.

“We have a unique opportunity to further tailor our supervision and regulation framework for large banks in a manner that allows us to be more risk-sensitive while still meeting our core goals of promoting safety and soundness,” Quarles said.

Reporting by Michelle Price; Editing by Frances Kerry

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