The Federal Reserve should recalibrate the tailoring thresholds for economic growth and inflation since 2019 – when the Fed’s tailoring rule was adopted – and provide for automatic periodic indexing of the thresholds going forward, the American Bankers Association and Bank Policy Institute said today.
In a joint letter, the two associations said recalibration was “urgently necessary” in light of the agencies’ pending proposals to significantly revise the capital framework. Specifically, they made three recommendations:
- Recalibrate the existing thresholds to reflect economic growth and inflation since 2019.
- Adopt automatic indexing to ensure thresholds remain aligned with economic conditions over time.
- Consider broader reforms and updates to improve the tailoring framework’s effectiveness, including regarding the number of categories and the thresholds that define them.
The associations also said the Fed should provide greater certainty for banks regarding the requirements that apply to them, particularly in light of pending capital proposals.
“Indexing the thresholds is urgently needed to right-size the regulatory framework and promote opportunities for organic growth within the banking system,” they said. “Recalibrating the thresholds will also provide time for the Federal Reserve to consider further changes to the tailoring framework to promote regulatory efficiency and risk sensitivity while mitigating cliff effects.”
