Lawmakers Ask Regulators to Abandon ‘One-Size-Fits-All’ Approach to Banks

Republican members of the House Financial Services Committee have asked federal banking regulators to reconsider the application of Enhanced Prudential Standards (EPS) for banks with between $100 billion and $250 billion in assets.

The lawmakers also suggested that regulations should be tailored to actual risk and that regulatory thresholds should be indexed to economic growth metrics, according to a Tuesday (Nov. 25) press release issued by the committee.

The committee members offered these suggestions in a letter dated Friday (Nov. 21) and addressed to the Federal Reserve Board, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation.

The lawmakers said in the letter that the application of EPS should be reconsidered for banks in Categories II, III and IV that have between $100 billion and $250 billion in assets.

They said Congress directed the Federal Reserve Board in 2018 to tailor regulations to banks of this size, but the FRB’s application of EPS “still too closely resembles the one-size-fits-all approach that Congress explicitly rejected in 2018.”

The lawmakers asked the regulators to consider creating additional categories of banks and applying regulations based on actual risk characteristics.

“We believe the current framework of regulation for banks generally, and Category II, III and IV banks in the particular context of EPS regulation, acts as a barrier to more robust competition for the largest banks given the largely one-size-fits-all approach taken in regulating banks with $100 billion or more in assets and given the fact that Category II, III and IV banks are forced to spread their regulatory compliance costs over small economies of scale,” the lawmakers said in the letter.

The federal banking regulators have made efforts in other areas to tailor regulations to banks of different sizes. In a Tuesday (Nov. 25) announcement of their proposal to change the community bank leverage ratio framework, the FRB, OCC and FDIC said they aimed to reduce the regulatory burden on these banks.

“The proposal reflects a deeper understanding of the unique business models, risk profiles, and operational realities of community banks,” they said in a press release. “These tailored modifications represent a necessary step in continuing to focus attention on the unique needs of community banks in today’s financial landscape.”