General Information & Client Service
  • Americas: +1.212.553.1653
  • Asia: +852.3551.3077
  • China: +86.10.6319.6580
  • EMEA: +44.20.7772.5454
  • Japan: +81.3.5408.4100
Media Relations
  • New York: +1.212.553.0376
  • London: +44.20.7772.5456
  • Hong Kong: +852.3758.1350
  • Tokyo: +813.5408.4110
  • Sydney: +61.2.9270.8141
  • Mexico City: +001.888.779.5833
  • Buenos Aires: +0800.666.3506
  • São Paulo: +0800.891.2518
July 18, 2018

Randal K. Quarles of FED spoke at the American Bankers Association Summer Leadership Meeting in Utah. He established that the FED will need to revise its prudential framework to allow for a greater differentiation in the supervision and regulation of large firms, as stipulated by the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCP Act).

Mr. Quarles stated that, in late May, the Congress enacted the EGRRCP Act, which directs FED to further tailor the supervision and regulation of large banks with more than USD 100 billion in assets. In this context, he first described the ways in which FED has already tailored regulations to the largest and most complex banks since the global financial crisis. However, he said, “…we still have more to do to streamline our framework in a manner that more directly addresses firm-specific risks.” In applying enhanced prudential standards for firms with total assets of more than USD 100 billion, the Congress requires FED to consider not only size but also capital structure, riskiness, complexity, financial activities, and any other factors FED deems relevant. While similar factors are being used to calibrate the largest firms' global systemically important bank (G-SIB) surcharges, they have not been used more holistically to tailor the overall supervision and regulation of large banks that do not qualify as G-SIBs. Additionally, consistent with the legislation's tailoring requirements, FED must proactively consider how firms with more than USD 250 billion in assets that do not qualify as G-SIBs may be more efficiently regulated by applying more tailored standards. In conjunction with changing the regulations, FED also needs to consider how such changes would be reflected in supervisory programs, guidance, and regulatory reporting.

Supervisors need to balance providing appropriate relief to firms with ensuring that firms are maintaining resources and risk-management practices so they can be resilient under a range of conditions. He believes that FED should make it a near-term priority to issue a proposed rule on tailoring of enhanced prudential standards for large banking firms. This proposal, subject to notice and comment, would address the statutory obligations under the recent legislation by proposing to tailor enhanced prudential standards in a manner that recognizes relative complexity and interconnectedness among large banks. “The statute sets an eighteen-month deadline for this regulatory process, but we can and will move much more rapidly than this,” said Mr. Quarles. Following are the key highlights of the changes under consideration by FED, according to Mr. Quarles: 

  • In terms of capital requirements, both risk-based and leverage capital requirements should remain core components of regulation for large firms with more than USD 100 billion in total assets. The already proposed stress capital buffer, if finalized, would also be critical for large firms. However, FED could consider a number of changes for less complex and less interconnected firms related to their capital requirements. For example, such firms, even if above USD 250 billion in assets, could have less frequent company-run stress tests. Additionally, less complex and less interconnected firms could be exempted from requirements to calculate risk-weighted assets under the models-based advanced approaches to capital.
  • He strongly believes that liquidity regulation should be a primary component of supervision and regulation of large banks. Minimum standardized liquidity measures and internal liquidity stress tests remain critical for firms with more than USD 100 billion in total assets. However, for less complex and less interconnected firms with assets greater than USD 100 billion, there may be opportunities to modify aspects of the standardized liquidity requirements as well as expectations around internal liquidity stress tests and liquidity risk management. Similarly, banks with more than USD 250 billion in assets that are not G-SIBs currently face largely the same liquidity regulation as G-SIBs. It would make sense to calibrate the liquidity requirements differently for these firms relative to their G-SIB counterparts.
  • He also mentioned the possibility of scaling back or entirely removing the resolution planning requirements for most of the firms with total assets between USD 100 billion and USD 250 billion that do not pose a high degree of resolvability risk, especially if they are less complex and less interconnected. He suggested that FED should consider limiting the scope of application of resolution planning requirements to only the largest, most complex, and most interconnected banking firms because their failure poses the greatest spillover risks to the broader economy. For firms that would still be subject to resolution planning requirements, FED could reduce the frequency and burden of such requirements, perhaps by requiring more-targeted resolution plans.

 

Related Link: Speech

Keywords: Americas, US, Banking, EGRRCP Act, Proportionality, G-SIBs, FED

Related Insights
News

BCBS Finds Liquidity Risk Management Principles Remain Fit for Purpose

BCBS completed a review of its 2008 Principles for sound liquidity risk management and supervision. The review confirmed that the principles remain fit for purpose.

January 17, 2019 WebPage Regulatory News
News

MAS Guidelines on Risk Mitigation Requirements for OTC Derivatives

MAS published guidelines on risk mitigation requirements for non-centrally cleared over-the-counter (OTC) derivatives contracts.

January 17, 2019 WebPage Regulatory News
News

HKMA Urges Local Banks to Start Working on FRTB Implementation

HKMA announced that it plans to issue a consultation paper on the new market risk standard in the second quarter of 2019.

January 17, 2019 WebPage Regulatory News
News

EBA Finalizes Guidelines for High-Risk Exposures Under CRR

EBA published the final guidelines on the specification of types of exposures to be associated with high risk under the Capital Requirements Regulation (CRR). The guidelines are intended to facilitate a higher degree of comparability in terms of the current practices in identifying high-risk exposures.

January 17, 2019 WebPage Regulatory News
News

BoE Publishes the Schedule for Statistical Reporting for 2019

BoE published the updated schedule for statistical reporting for 2019. The reporting institutions use the online statistical data application (OSCA) to submit statistical data to BoE.

January 16, 2019 WebPage Regulatory News
News

PRA Delays Final Direction on Reporting of Private Securitizations

PRA and FCA have delayed the issuance of final direction, including the final template, on reporting of private securitizations, from January 15, 2019 to the end of January 2019.

January 15, 2019 WebPage Regulatory News
News

SNB Updates Forms on Supervisory Reporting for Banks

SNB published Version 1.7 of reporting forms (AUR_U, AUR_UEA, AUR_UES, AURH_U, AUR_K, AUR_KEA, and AURH_K) and the related documentation for supervisory reporting on an individual and consolidated basis.

January 15, 2019 WebPage Regulatory News
News

BCBS Finalizes Market Risk Capital Framework and Work Program for 2019

BCBS published the final framework for market risk capital requirements and its work program for 2019. Also published was an explanatory note to provide a non-technical description of the overall market risk framework, the changes that have been incorporated into in this version of the framework and impact of the framework.

January 14, 2019 WebPage Regulatory News
News

EBA Single Rulebook Q&A: First Update for January 2019

EBA published answers to 13 questions under the Single Rulebook question and answer (Q&A) updates for this week.

January 11, 2019 WebPage Regulatory News
News

PRA Proposes to Amend Supervisory Statement on Credit Risk Mitigation

PRA published the consultation paper CP1/19 that is proposing changes to the supervisory statement (SS17/13) on credit risk mitigation.

January 10, 2019 WebPage Regulatory News
RESULTS 1 - 10 OF 2473