ABA today joined 52 state bankers associations in a joint comment letter on the FDIC’s proposal to begin indexing certain regulatory thresholds. The letter applauded the FDIC’s effort to develop a “sound and transparent framework” while also recommending changes to ensure that indexing mechanisms are “appropriately tailored to the nature and purpose” of each threshold.
“Static thresholds create a host of unintended consequences,” the associations wrote. “Over time, economic growth and inflation erode the real value of these thresholds, pulling more institutions into regulatory regimes that were never intended to apply to them. This results in a misallocation of supervisory resources, unnecessary compliance costs, and distorted business planning. Community banks, in particular, face recruitment and operational challenges in meeting requirements that were designed for much larger institutions.”
According to the associations, indexing offers a solution ensuring that thresholds “evolve with economic growth,” and preserve the original intent of regulatory frameworks while reducing the need for constant intervention. It enhances transparency, supports long-term planning, and ensures regulatory requirements “remain aligned with actual risk,” they said, noting that indexing will make oversight “smarter, more sustainable and more credible.”
While commending the proposal as an “important step toward aligning regulatory coverage with real-world conditions,” the letter makes the case that indexing asset- and activity-based thresholds to nominal gross domestic product, rather than to inflation, would better preserve the original intent of these thresholds.
The letter adds that the use of a price index for consumer-facing dollar-based thresholds would remain appropriate. The letter also urges the FDIC to consider the base effects of the initial adjustment of thresholds and to adopt a transition mechanism to smooth the impact on banks that cross regulatory thresholds. It also encourages the FDIC to coordinate with the other federal banking regulators and Congress on broader indexing efforts to pursue a harmonized and cohesive approach to indexing.
