Speaking at an industry event in Washington, D.C., today, Federal Reserve Governor Daniel Tarullo floated an idea originated by ABA and the state bankers associations to relieve compliance burdens associated with capital rules.
“One idea I have heard is to allow smaller community banks to opt into a simpler set of risk-weighted capital requirements in exchange for a higher minimum required ratio than under the more risk-sensitive, but more complicated, standardized risk-weighted requirements finalized in 2013,” Tarullo said. “Because so many smaller community banks maintain capital levels well above minimum regulatory levels anyway, the tradeoff of higher requirements for a simpler approach may be promising.”
ABA and the state bankers associations wrote to the regulatory agencies last fall urging them to allow highly capitalized banks — those with “capital levels far in excess of any amounts that would be required even after a fulsome application of the complex evaluations” — to be exempt from the complicated Basel III calculations.
In his speech, Tarullo also nodded to the importance of tailored regulation, a long-standing priority of ABA and the state associations, versus strictly defined asset-based tiers. Noting that the traditional asset-based definition of a community bank stops at $10 billion, he added that “for purposes of establishing regulatory objectives, a bank with $12 billion in assets might not be readily distinguishable from one with $8 billion in assets.”
