Quarles Updates on Near-Term Reg Changes, Outlines Future Areas of Focus

Speaking at a legal conference in Washington today, Federal Reserve Vice Chairman for Supervision Randal Quarles provided a status update on five key areas where the Fed is making regulatory changes and outlined three future areas of focus. “In undertaking this review and assessment, in addition to ensuring that we are satisfied with the effectiveness of these regulations, I believe that we have an opportunity to improve the efficiency, transparency, and simplicity of regulation,” he said.

Recently proposed rules include capital simplification for smaller banks and increased transparency in stress testing, Quarles said, and he added that the Fed should permanently extend the “living will” process to once every two years instead of annually. He added that recalibrating the leverage ratio is one of the Fed’s “highest-priority, nearest-term initiatives,” and that five banking agencies are working on a proposal to streamline the Volcker Rule but that “it will naturally take a bit of work.”

On the horizon are three priorities, Quarles said. One is continued efforts to tailor supervision to individual banks’ sizes, systemic footprints, risk profiles and business models — as the American Bankers Association has long urged. “The character of our regulation should match the character of the risk at the institution,” he remarked.

Quarles also outlined a goal of revisiting the “advanced approaches” thresholds that define the largest, globally active banks, noting that the current $250 billion-asset or $10 billion in on-balance-sheet foreign exposures thresholds are a decade old “and have not been refined since then.” He also said he will work with his fellow Fed governors to simplify loss absorbency requirements, noting that there are 24 separate requirements. “While I do not know precisely the socially optimal number of loss absorbency requirements for large banking firms, I am reasonably certain that 24 is too many,” he said.