In a letter to the heads of the federal banking agencies today, American Bankers Association President and CEO Rob Nichols said it was time for regulators to revisit the numerous asset thresholds at which different regulatory frameworks begin to apply. Several years after these thresholds have been implemented, Nichols said regulators should consider whether the thresholds are meeting their supervisory purposes or “unintentionally limiting economic growth,” which is not an academic question given the persistently low-growth environment in developed economies.
Nichols noted that “rudimentary” asset-size thresholds were earlier adopted out of a spirit of tailored supervision — a spirit that should encourage more sophisticated tailoring. “Reflection and experience tell us that asset size has a poor correlation with prudential risk,” he explained. “We believe an appropriate alternative approach would be to replace the thresholds with a more risk-sensitive, dynamic measure that would better align regulatory requirements with risk.”