Yellen: Agencies Exploring Ways to Reduce Capital, Appraisal Burdens

As part of its response to the recently concluded Economic Growth and Regulatory Paperwork Reduction Act review process, the federal banking agencies are looking to reduce burdens of appraisal requirements and to simplify regulatory capital rules for community banks, Federal Reserve Chairman Janet Yellen told the House Financial Services Committee today. The American Bankers Association has long advocated with regulators to recognize highly capitalized banks as already meeting Basel III capital standards without having to go through the complex calculations.

“Themes emerging from [the EGRPRA process] include streamlining the Call Report, reducing examination frequency, raising long-standing dollar-based thresholds for appraisals, and reducing the complexity of capital requirements for smaller banks,” Yellen said, noting that the agencies have proposed a streamlined Call Report and have implemented a statute extending the exam cycle for smaller, well-capitalized banks.

She said Congress might also “consider carving out community banks” from the Volcker Rule and Dodd-Frank’s incentive compensation limits. “The risks addressed by these statutory provisions are far more significant at larger institutions than they are at community banks,” she said. “Community banks and supervisors would benefit from not having to focus on regulatory compliance for matters that are unlikely to pose problems at smaller banks.”

Yellen emphasized the “very special role” community banks play in the financial system. “Reducing regulatory burden is important and is something that we will seek to foster using every available tool that we have.”

She also reiterated remarks from Fed Governor Daniel Tarullo earlier this week on options the Fed has proposed or is considering to recalibrate the Comprehensive Capital Analysis and Review process for banks with more than $50 billion in assets.