By Victoria McGrane
Federal Reserve Chairwoman Janet Yellen on Thursday said she
would support a "modest increase" to the minimum size at which
banks are drawn in for tougher scrutiny by the central bank.
At issue is the $50 billion threshold set by the 2010 Dodd-Frank
law at which a bank automatically qualifies for Fed supervision and
regulation under a set of tougher capital, liquidity and other
requirements such as participating in the Fed's annual "stress
test" exam. Regional banks above the threshold like Zions Bancorp,
Huntington Bancshares Inc. and Regions Financial Corp. are fighting
for that bar to be raised and Ms. Yellen's remarks are the latest
sign that they may eventually be successful in that pursuit.
These banks say they shouldn't face the enhanced regulatory
scrutiny because their businesses are more traditional than
Wall-Street banks and aren't systemically important to the U.S.
economy.
"I would be open to a modest increase in the threshold," Ms.
Yellen said Thursday in remarks before the Senate Banking
Committee, marking the first time she has publicly endorsed the
idea.
The comments come after Senate Banking Chairman Richard Shelby
(R., Ala.) included a proposal to alter the limit in a wide-ranging
regulatory package approved by his committee in May. Ms. Yellen's
comments strike a different tone on the issue than the Obama
administration, which has been reluctant to embrace any changes to
Dodd-Frank.
Just last week, Treasury Secretary Jacob Lew sounded far less
enthusiastic, saying Mr. Shelby's proposal "would take some of the
very largest financial institutions in our country out of
heightened scrutiny."
Mr. Shelby's bill, which was approved by the banking panel on a
party-line vote, would raise the automatic threshold to $500
billion, but allow regulators--guided by criteria such as size,
international risk and complexity--to decide whether banks between
$50 billion and $500 billion should face tougher rules.
"We are encouraged by the continued discussion of the benefits
of increasing the threshold," James Abbott, director of investor
relations at Zions Bancorp, which has $58 billion in assets, said
of Ms. Yellen's remarks.
Columbus, Oh.-based Huntington and Birmingham, Ala.-based
Regions didn't immediately return requests for comment.
While Dodd-Frank gave the Fed limited power to tailor many of
the tougher rules prescribed for those banks above the $50 billion
threshold, Ms. Yellen said, it is harder to scale the stress tests
or the requirement that the banks each year write and revise
so-called "living wills" to show they can go through bankruptcy
without damaging the broader financial system.
"It does look from our experience that the costs exceed the
benefits" in these areas for some of the smaller banks, Ms. Yellen
said.
Her support for any change, however, would depend on the Fed
retaining the discretion to impose stress testing and other
requirements on banks below the new threshold if the Fed deems them
a big enough risk to the financial system, she said.
The fate of the $50 billion threshold remains uncertain despite
the existence of bipartisan support for some sort of change.
Some Democrats including Sen. Sherrod Brown of Ohio say they're
open to raising the threshold, though they're wary of cutting a
deal on Mr. Shelby's broader bill for fear it will gut other
provisions of Dodd-Frank they support. Earlier this week, Mr. Brown
mentioned $150 billion or $200 billion as a possible higher level.
Mr. Shelby, who says he is open to negotiating aspects of his bill,
needs the support of at least a handful of Democrats to get a bill
through the full Senate.
Other Democrats such as Massachusetts Sen. Elizabeth Warren are
adamantly opposed to raising the threshold above $50 billion. Ms.
Warren says that the threat posed by the possible failure of more
than one midsize bank at a single time justifies keeping the level
where it is. She also says Dodd-Frank gives the Fed enough power to
tailor the rules for less risky banks.
Rachel Louise Ensign contributed to this article.
Access Investor Kit for Huntington Bancshares, Inc.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US4461501045
Access Investor Kit for Regions Financial Corp.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US7591EP1005
Access Investor Kit for Zions Bancorp.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US9897011071