Examining the Regulatory Regime for Regional Banks

Main Points

1. Section 165 of the 2010 Dodd-Frank Act authorizes the Board of Governors of the Federal Reserve System to establish "more stringent" standards and requirements for bank holding companies with assets over $50 billion compared with smaller bank holding companies. At the same time, the Fed is granted considerable discretion to determine exactly how to apply these standards, including what requirements are imposed on different sized banks (Section 165(a)(2)(A)). (The precise wording of the Act is discussed further in Section C below.)
2. As a matter of practice since 2010, the Fed has not applied one set of standards to all banks with assets over $50 billion. There is substantial differentiation, depending in part on size, but also varying according to factors such business model, complexity, and opaqueness.
3. This differentiation, to date, seems sensible and reasonably robust - subject to the points below. It also appears completely consistent with Congressional intent, expressed through Dodd-Frank and earlier legislation that is still in effect.