LAST FALL, WE URGED the Federal Reserve’s Vice Chair for Supervision, Randal K. Quarles, to “call your office” in impelementing the provisions of 2018’s regulatory-reform-minded Crapo bill, especially as applied to small and community banks.
In particular, we encouraged hmi to take note of the growing mountain of evidence — much of it at the Fed, the Federal Deposit Insurance Corporation, and the Comptroller of the Currency — that large financial institutions should be the primary focus of regulation… whereas, the health of smaller banks, if relieved of some of the regulatory burden, would actually contribute not only to competive diversity, but financial stability.
Judging from his May 15 testimony before the Senate Committe on Banking, Housing, and Urban development, Quarles made that call.
The Fed, Quarles explained, approached the Crapo Act (a.k.a. “ERRCPA”) as a call on regulators to “to focus our energy and attention on both the institutions that pose the greatest risks to financial stability and the activities that are most likely to challenge safety and soundness.”
In addition to noting the Fed’s effort to relieve small institutions from most of the burdens of the Volcker rule — which happend last summer — Quarles reviewed the main tiers of Crapo Act implementation:
“We also have been providing targeted regulatory relief, especially for community banks and other less complex organizations.
• “We proposed a new interagency Community Bank Leverage Ratio to give community banking organizations a more straightforward approach to satisfying their capital requirements. State bank supervisors and others have provided thoughtful comments on our work, which we are taking into account.
• “We expanded community banking organizations’ eligibility for both longer examination cycles and exemptions from holding company capital requirements, and we have proposed more limited regulatory reporting requirements for community banks.
• “We provided smaller regional bank holding companies immediate relief from annual holding company assessments and fees, stress testing requirements, and other prudential measures designed for larger institutions.”
The shift in conceptual approach that appears to be in progress is heartening — even if better regulation, compared to monetary reform, as a second-best solution. The breadth of paradigm shift is event in the detailed Federal Reserve Supervision and Regulation Report of May 14.
More on that report to come. In the meantime, we’re offering polite applause for the prudent “regulatory hand” to Mr. Quarles.