​FDIC’s Hoenig Adds Weight to Tailored Regulatory Approach

FDIC Vice Chairman Thomas Hoenig today became the latest regulator to emphasize the need to tailor regulations to suit banks’ risk profiles and business models, suggesting several ways that regulatory burdens could thus be lightened for “the vast majority of commercial banks.” ABA and the state bankers associations have aggressively advocated for a more tailored approach by regulators and welcomed favorable comments from Federal Reserve Governor Daniel Tarullo and Comptroller of the Currency Thomas Curry.

“Defining an approach to regulatory relief by complexity and activity, not strictly size, would provide a beneficial and prudent trade-off for firms protected by the safety net by acknowledging that banks that engage in traditional banking activities are sufficiently supervised and by appropriately bringing riskier activities under greater scrutiny,” Hoenig said.

For example, Hoenig’s regulatory relief ideas would apply to well-capitalized banks that hold no trading assets or liability, that hold no derivative positions apart from interest rate swaps and foreign exchange derivatives and that have a total notional value of derivatives exposures below $3 billion. He recommended exemptions from all Basel capital standards and calculations, from certain Call Report schedules, from Dodd-Frank stress tests and from appraisal requirements. He also suggested eliminating requirements to refer possible or apparent fair lending violations to the Justice Department “if judged to be de minimis or inadvertent” and allowing an 18-month exam cycle.

Unlike Curry and Tarullo — both of whom have recommended that Congress should also exempt banks with less than $10 billion in assets from the Volcker Rule — Hoenig insisted that Volcker should remain intact, arguing that “the vast majority of community banks have virtually no compliance burden associated with implementing the Volcker Rule.” ABA has advocated tailoring the Volcker Rule out of concern for its unnecessary and unintended effects on the activities of community banks and other important banking services.