Let’s Give Smaller Banks a Break: FDIC Chair

Federal Deposit Insurance Corporation Vice Chairman Thomas Hoenig outlined a proposal for most of the country’s banks to get “regulatory relief,” but the country’s largest banks would not meet the criteria.

In prepared remarks to the 24th Annual Hyman P. Minsky Conference in Washington, D.C., Hoenig said that Congress should lessen the regulatory burden of banks that hold foreign exchange and interest-rate derivatives worth less than $3 billion, maintain an equity-to-asset ratio of at least 10%, and don’t engage in trading activity.

Of the more than 6,500 commercial banks, only about 400 do not meet these three conditions, including all of the banks with more than $100 billion in assets, Hoenig said.

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“Given that activities of the more traditional banks pose less risk to the public, I suggest that meaningful regulatory relief for traditional banks — those that meet the criteria above — can be provided in a manner that is entirely consistent with safety and soundness,” he said.

Such relief could include:

• Exempting traditional banks from all Basel capital standards and associated capital amount calculations and risk-weighted asset calculations.
• Exempting such banks from several entire schedules on the call report, including schedules related to trading assets and liabilities, regulatory capital requirement calculations, and derivatives.
• Allowing for examiner judgment and eliminating requirements to refer “all possible or apparent fair lending violations to [the] Justice [Department]” if judged to be de minimis or inadvertent.
• Establishing criteria that would exempt traditional banks from appraisal requirements.
• Where judged appropriate, allowing for an 18-month examination cycle as opposed to the current required 12-month cycle for traditional banks.

A Wall Street Journal/Dow Jones article Wednesday said that Hoenig’s “quid-pro-quo idea” could expedite regulatory relief legislation, particularly since it focuses on regional and community banks and leaves intact stricter requirements for larger banks.

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