Governor Tarullo delivered a speech on Friday outlining his views on a number of items on the Board’s upcoming regulatory agenda including U.S. branches of FBOs, Enhanced Prudential Standards, and regulation of community banks.

U.S. branches of FBOs — capital and liquidity

The Board will “take another look at” the capital and liquidity positions of large U.S. branches of some foreign banks:

“The actual consolidated capital positions of some such banks can be difficult for us to discern when the bank uses internal models to compute its required regulatory capital. It is critical to ensure that large U.S. branches of foreign banks do not create financial instability in the United States if their parents’ global positions come under stress.”

$50 billion Enhanced Prudential Standards cutoff — potential increase

Gov. Tarullo “would raise the threshold for enhanced prudential standards from its current $50 billion level, perhaps to $100 billion.”

Regulation of banks under $10 billion — exemption from certain rules, reduction in number of compliance exams and exercises

  • Gov. Tarullo “would entirely exempt” banks under $10 billion “from some regulations, such as the Volcker rule and the incentive compensation rule.”
  • “[T]he burden of these rules for small banks is often less in the substantive constraints they impose on bank activities than in the compliance costs they impose. Even with efforts by banking agencies to streamline implementing regulations for smaller banks, the relatively scarce compliance resources of those banks must still be directed towards assuring that no changes in substantive activities are needed and possibly documenting their compliance.”

  • Although efforts to simplify capital rules for small banks are “worthwhile,” banks may get more benefit from regulatory efforts to reduce the number of rules that apply to them and “the number of separate compliance exams and exercises.”
  • “[T]he smaller the bank, the greater the likelihood that a potential disconnect between costs and benefits of regulation is rooted in the disproportionate costs of exams, audits, and reporting.”