White House Calls for Tougher Midsize Bank Rules
WASHINGTON—The White House on Thursday called for tougher rules for midsize banks after the collapse of two lenders earlier this month sent tremors through the banking system.
The recommendations call for new rules from the Federal Reserve and other banking regulators that would apply to banks with $100 billion to $250 billion in assets. There were approximately 20 firms in that asset range as of the end of 2022, according to the Federal Financial Institutions Examination Council.
The Fed is already rethinking a number of its rules related to those banks after Silicon Valley Bank and Signature Bank failed. Changes could include tougher capital and liquidity requirements, as well as steps to strengthen stress tests that assess banks’ ability to weather a hypothetical severe downturn.
The White House urged them on Thursday to consider all of those changes. The proposal includes provisions that can be taken under existing law. None of the recommendations would require congressional action.
The administration is also pressing regulators to complete unfinished rules from the 2010 Dodd-Frank financial law, specifically a provision designed to curb compensation packages that could encourage excessive risk taking.
A Fed spokesman didn’t immediately respond to a request for comment.
Industry officials criticized the recommendations as premature, coming before planned reviews by the Fed and other agencies.
“It would be unfortunate if the response to bad management and delinquent supervision at
SVB
were additional regulation on all banks that would impose meaningful costs on the U.S. economy going forward,” said
Greg Baer,
the president and chief executive of the Bank Policy Institute, which represents midsize and large banks. “This has a strong feeling of ready, fire, aim.”
Regulators took control of Santa Clara, Calif.-based SVB on March 10. The collapse sparked a panic that led to the weekend failure of Signature Bank and a dramatic intervention by financial regulators aimed at easing fears that depositors would flee smaller lenders.
The worries about American banks have centered on regional lenders that are perceived to be subject to the threat of deposit flight. Both SVB and Signature had large amounts of uninsured deposits—or customers with more than the standard insurance cap of $250,000 per depositor.
The changes envisioned by the Biden White House would reverse some steps taken during the Trump administration to lower regulatory costs for midsize firms. That included freeing regional lenders from certain capital and liquidity rules or reducing those requirements.
Supporters said the moves clarified or better calibrated the central bank’s rules to reflect various-sized firms’ risks to the financial system. They say the changes weren’t relevant to the speedy collapse of SVB, which saw the bulk of its depositors ask for their money back in an approximately 24-hour period early this month, officials told U.S. lawmakers this week.
The regulatory changes came after Congress in 2018 scaled back parts of the Dodd-Frank law for banks with less than $250 billion in assets. Democratic critics said the looser rules for midsize banks went beyond what lawmakers directed regulators to do, weakening core safeguards against vulnerabilities that led to the 2008 financial crisis.
The White House on Thursday said in a fact sheet that regulators during the Trump administration weakened “important common-sense requirements and supervision for large regional banks.”
In addition to the capital and liquidity rules, the White House urged regulators to expand requirements for firms to provide so-called living wills, which are plans for banks to wind themselves down in a crisis without a government bailout. They also recommended regulators adjust the scope of a separate proposal to add to midsize banks’ financial cushions that could be called on in times of crisis.
An October plan floated by the Fed and Federal Deposit Insurance Corp. would have required firms with more than $250 billion in assets to raise long-term debt that can help absorb losses in case of their insolvency. Regulators now are considering proposing the measure to apply to smaller banks as well.
The White House also called on the FDIC to shield small community banks from having to bear the costs of replenishing the deposit insurance fund for expenses tied to the failures of SVB and Signature. The FDIC makes up for losses to the fund with an assessment on banks. FDIC Chairman
Martin Gruenberg
told lawmakers this week that the agency could exempt the smallest banks.
A White House official said community banks shouldn’t bear those costs, estimated at $22.5 billion, since they played no role in the actions that resulted in this month’s interventions.
Write to Andrew Ackerman at [email protected]
Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8
WASHINGTON—The White House on Thursday called for tougher rules for midsize banks after the collapse of two lenders earlier this month sent tremors through the banking system.
The recommendations call for new rules from the Federal Reserve and other banking regulators that would apply to banks with $100 billion to $250 billion in assets. There were approximately 20 firms in that asset range as of the end of 2022, according to the Federal Financial Institutions Examination Council.
The Fed is already rethinking a number of its rules related to those banks after Silicon Valley Bank and Signature Bank failed. Changes could include tougher capital and liquidity requirements, as well as steps to strengthen stress tests that assess banks’ ability to weather a hypothetical severe downturn.
The White House urged them on Thursday to consider all of those changes. The proposal includes provisions that can be taken under existing law. None of the recommendations would require congressional action.
The administration is also pressing regulators to complete unfinished rules from the 2010 Dodd-Frank financial law, specifically a provision designed to curb compensation packages that could encourage excessive risk taking.
A Fed spokesman didn’t immediately respond to a request for comment.
Industry officials criticized the recommendations as premature, coming before planned reviews by the Fed and other agencies.
“It would be unfortunate if the response to bad management and delinquent supervision at
SVB
were additional regulation on all banks that would impose meaningful costs on the U.S. economy going forward,” said
Greg Baer,
the president and chief executive of the Bank Policy Institute, which represents midsize and large banks. “This has a strong feeling of ready, fire, aim.”
Regulators took control of Santa Clara, Calif.-based SVB on March 10. The collapse sparked a panic that led to the weekend failure of Signature Bank and a dramatic intervention by financial regulators aimed at easing fears that depositors would flee smaller lenders.
The worries about American banks have centered on regional lenders that are perceived to be subject to the threat of deposit flight. Both SVB and Signature had large amounts of uninsured deposits—or customers with more than the standard insurance cap of $250,000 per depositor.
The changes envisioned by the Biden White House would reverse some steps taken during the Trump administration to lower regulatory costs for midsize firms. That included freeing regional lenders from certain capital and liquidity rules or reducing those requirements.
Supporters said the moves clarified or better calibrated the central bank’s rules to reflect various-sized firms’ risks to the financial system. They say the changes weren’t relevant to the speedy collapse of SVB, which saw the bulk of its depositors ask for their money back in an approximately 24-hour period early this month, officials told U.S. lawmakers this week.
The regulatory changes came after Congress in 2018 scaled back parts of the Dodd-Frank law for banks with less than $250 billion in assets. Democratic critics said the looser rules for midsize banks went beyond what lawmakers directed regulators to do, weakening core safeguards against vulnerabilities that led to the 2008 financial crisis.
The White House on Thursday said in a fact sheet that regulators during the Trump administration weakened “important common-sense requirements and supervision for large regional banks.”
In addition to the capital and liquidity rules, the White House urged regulators to expand requirements for firms to provide so-called living wills, which are plans for banks to wind themselves down in a crisis without a government bailout. They also recommended regulators adjust the scope of a separate proposal to add to midsize banks’ financial cushions that could be called on in times of crisis.
An October plan floated by the Fed and Federal Deposit Insurance Corp. would have required firms with more than $250 billion in assets to raise long-term debt that can help absorb losses in case of their insolvency. Regulators now are considering proposing the measure to apply to smaller banks as well.
The White House also called on the FDIC to shield small community banks from having to bear the costs of replenishing the deposit insurance fund for expenses tied to the failures of SVB and Signature. The FDIC makes up for losses to the fund with an assessment on banks. FDIC Chairman
Martin Gruenberg
told lawmakers this week that the agency could exempt the smallest banks.
A White House official said community banks shouldn’t bear those costs, estimated at $22.5 billion, since they played no role in the actions that resulted in this month’s interventions.
Write to Andrew Ackerman at [email protected]
Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8
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