Board of Directors
Thomas M. Hoenig

Regulatory Relief

FDIC Vice Chairman Hoenig has updated his recommendations for supervision and regulatory relief for the U.S. banking industry defined around bank activity and the principle that bank investors put more capital at risk than taxpayers. To achieve these objectives, he has offered two separate plans tailored for the different business models and risk profiles of commercial banks and universal banks, including G-SIBs, that engage in non-traditional banking activities. The proposals are designed to reduce the competitive advantage universal banks have over community and regional commercial banks; promote competition and growth within the commercial banking model; ensure a safe and sound banking system; preserve consumer protections; and restore market discipline. 

Commercial Banks
The recommendations for commercial banks would define eligibility for regulatory relief around specific criteria based on a bank’s activities and capital level, rather than asset size, to reflect the longstanding business models of traditional community and regional commercial banks. Under the plan, a bank of any asset size including both community and regional banks would be eligible for relief if it holds trading total trading assets and trading liabilities of no greater than 10 percent of total assets; if it is not designated as a Global Systemically Important Banking Organization (G-SIB) and is not a subsidiary or affiliate of a G-SIB; and if it has a ratio of tangible equity to assets of at least 8 percent. Meaningful regulatory relief for banks that meet the criteria could include, but not be limited to, Basel capital standards and associated capital amount and risk-weighted asset calculations; quantitative liquidity standards such as the LCR and modified LCR; CCAR stress testing; living wills; appraisal requirements; exam frequency; and other rules outlined in the term-sheet for commercial banks in the term-sheet.

The recommendations are detailed in the term-sheet for commercial bank regulatory relief.

Universal Banks
Separate but related recommendations for universal banks addresses the challenge of too-big-to-fail, regulatory burden, and competitive equity posed by large and complex financial firms that engage in both commercial and non-traditional banking activities. The plan would not reduce the ability of a universal bank to conduct its current portfolio of activities, whatever they might. It would, however, make more effective use of the bank holding company business model by requiring these firms, as defined in the term sheet, to separately capitalize and manage these nontraditional activities, such as investment banking and broker-dealer activity. The plan also requires greater owner equity at risk in both the commercial bank and for nontraditional bank activities. With these conditions in place, too-big-to-fail would be well on its way to being addressed and a true opportunity for regulatory relief would be provided without undermining financial system stability and economic growth. Rules that could be eliminated include CCAR, DFAST, LCR, NSFR, Title II and living wills, and other enhanced requirements under section 165 of the Dodd-Frank Act.

The recommendations are detailed in the term-sheet for financial holding companies engaged in nontraditional banking activities