October 31, 2018

FED published two proposals—one by FED and the other one jointly issued with OCC and FDIC—that would create four tiers or categories of banks based on their risk profiles. The changes would significantly reduce regulatory compliance requirements for firms in the lowest risk category, modestly reduce requirements for firms in the next lowest risk category, and largely keep existing requirements in place for the largest and most complex firms in the highest risk categories. Comments will be accepted through January 22, 2019.

Firms would be sorted into categories based on several factors, including asset size, cross-jurisdictional activity, reliance on short-term wholesale funding, nonbank assets, and off-balance sheet exposure. Each factor reflects greater complexity and risk to a banking organization, resulting in greater risk to the financial system and broader economy. The framework establishes categories of standards for large banking organizations—those with more than USD 100 billion in total consolidated assets:

  • Firms in the lowest risk category—generally most domestic firms with USD 100 billion to USD 250 billion in total consolidated assets—would no longer be subject to standardized liquidity requirements. They would remain subject to firm-developed liquidity stress tests and regulatory liquidity risk management standards. Additionally, these firms 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 annual. These reduced requirements would reflect the lower risk profile of these firms.
  • Firms in the next lowest risk category—generally those with USD 250 billion or more in total consolidated assets, or material levels of the other risk factors, that are not global systemically important banking organizations (G-SIBs)—would have their standardized liquidity requirements reduced to reflect their more stable funding profile but remain subject to a range of enhanced liquidity standards. In addition, the firms would be required to conduct company-run stress tests on a two-year cycle, rather than semi-annually. The firms would remain subject to annual supervisory stress tests.
  • Firms in the highest risk categories—including the G-SIBs—would not see any changes to their capital or liquidity requirements.

The joint proposal would amend certain prudential standards, including standards relating to liquidity, risk management, stress testing, and single-counterparty credit limits, to reflect the risk profiles of banking organizations under each proposed category of standards and would apply prudential standards to certain large savings and loan holding companies using the same categories. The proposal would include changes to the reporting panels and requirements of the FR Y-14, FR Y-15, FR 2052a, FR Y-9C, and FR Y-9LP reporting forms. A separate tailoring proposal affecting foreign banks will be released in the future. The Appendix contains a chart showing the proposed requirements for each category, as well as a list of firms projected to be included in each category. FED estimates that the changes would result in a 0.6% decrease in required capital and a 2.5% reduction of liquid assets for all U.S. banking firms with assets of USD 100 billion or more. The proposals build on the FED's existing tailoring of its rules and would be consistent with changes from the Economic Growth, Regulatory Reform, and Consumer Protection (EGRRCP) Act. 


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Comment Due Date: January 22, 2019

Keywords: Americas, US, Banking, EGRRCP Act, Basel III, Reporting, Proportionality, Prudential Standards, US Agencies, FED