On Wednesday the Federal Reserve is set to vote on proposals that would further ease capital requirements for banks with assets of $700 billion or lower, expanding on Trump’s promise to deregulate Wall Street.
The biggest benefits will come to banks with between $100 billion and $250 billion of assets – or the bulk of regional banks – who would no longer have to adhere to liquidity coverage ratio and proposed net stable funding ratio, according to prepared remarks by Fed Vice Chairman of Supervision Randal Quarles. Firms between $100 billion and $250 billion would also face stress tests every two years, instead of annually
“A reduction of this magnitude is appropriate because most U.S. banking firms in this group are not engaged in complex activities and have more stable funding than systemic banks given their relatively traditional business models,” said Quarles.
At the same time, Non-Wall Street banks that have more than $250 billion of assets would move to a “calibrated” liquidity coverage ratio that is in the range of 70% to 85% of full LCR, Bloomberg notes.
Meanwhile, large banks will generally see little benefits from today’s deregulation: Quarles said that large bank holding companies now have about $1.3 trillion of capital, and the Fed proposals would reduce that by only $8 billion.
Curiously, Fed Governor Lael Brainard said she plans to vote against proposals, arguing they would raise “the risk that American taxpayers again will be on the hook” to bail out banks.
“I see little benefit to the institutions or the system from the proposed reduction in core resilience that could justify the increased risk to financial stability and the taxpayer,” Brainard says in prepared remarks.
Her caution is warranted in light of the recent earnings shock unveiled by Bank OZK which unveiled a deeply distressed commercial real estate portfolio, which sent its stock plunging and prompted questions whether banks are covering up deterioration in some of their CRE holdings.