Risk & Compliance

Fed OKs Rollbacks of Post-Crisis Banking Rules

The Board of Governors voted 4-1 in favor of the changes, with the dissenter saying they would weaken core safeguards.
Matthew HellerOctober 11, 2019

The Federal Reserve has voted to loosen liquidity and capital requirements for large U.S. banks that were imposed as part of the post-crisis Dodd-Frank financial reforms.

The Fed on Thursday adopted what The Wall Street Journal called “some of the most significant rollbacks of bank rules since President Trump took office” on a 4-1 vote, saying it was seeking to “tailor its regulations for domestic and foreign banks to more closely match their risk profiles.”

The new rules would divide banks with $100 billion or more in total assets into four categories based on, among other things, asset size, nonbank assets, and off-balance-sheet exposure. The higher the risk category, the greater the compliance requirements.

The Fed estimates the changes will result in a decrease of 0.6%, or about $11.5 billion, in required capital for those banks and a 2% drop in required liquid assets.

“Our rules keep the toughest requirements on the largest and most complex firms,” Fed Chairman Jerome Powell said in a news release. “In this way, the rules maintain the fundamental strength and resiliency that has been built into our financial system over the past decade.”

However, Lael Brainard, the only Fed governor to vote against the new rules, warned that they would weaken the “safeguards at the core” of the post-crisis regulatory system.

“At a time when the large banks are profitable and providing ample credit, I see little benefit to the banks or the system from the proposed reduction in core resilience that would justify the increased risk to financial stability in the future,” she said.

For the largest banks, including Bank of America, JPMorgan Chase, and Citigroup, the Fed is also easing the requirement that they explain how they would wind down their operations, allowing them to produce “living-will” plans every four years rather than every year.

The changes were supported by the banking industry, which said they would reduce the regulatory burden. “Regulators and banks have over the years struggled with the living-will process,” the WSJ noted.

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