Regulators agree that US banks' asset thresholds need revamping, though they differ about the best way to do so.
Two of the industry's top regulators voiced support for raising asset thresholds at the Federal Reserve's community banking conference on Oct. 9. During a fireside chat, Treasury Secretary Scott Bessent, who is at the helm of bank regulation during this administration, suggested asset thresholds need to be adjusted using inflation. Meanwhile, the Fed's top bank regulator, Vice Chair for Supervision Michelle Bowman, thinks a growth-based adjustment would work better.
"A simple fix would be for policymakers to adjust the community bank and other thresholds based on growth — and apply that adjusted threshold consistently — indexed to adjust for future growth," Bowman said. "This approach would preserve the policy choice established when the threshold was initially set."
Bessent agreed there needs to be "a substantial increase," citing an example that a bank might not be able to take a big deposit because doing so would send it over $500 million in assets and bring on the regulatory compliance burden.
"We want to make sure that you're able to grow without setting off these regulatory trip wires," he added.
Since Trump-appointed regulators took office earlier this year, increasing regulatory asset thresholds has been a top priority, with critical ones like $10 billion and $100 billion getting the most attention. But during the Fed's community bank conference, CEOs emphasized the importance of smaller thresholds, such as $500 million, and the cost they bring smaller banks with smaller expense bases than their large counterparts.
"I know $30 billion might be the new mark for what a community bank is, but that is a big bank compared to all of us," Belleville, Pennsylvania-based Kish Bank President and CEO Gregory Hayes said during a panel. Kish Bank had $1.83 billion in assets as of June 30. The Office of the Comptroller of the Currency recently raised its $10 billion level for measuring community banks to $30 billion, as part of an agency reorganization followed by several regulatory changes.
Little Rock, Arkansas-based Eagle Bank and Trust Co. Chairman Cathy Owen concurred with Bowman's approach of indexing thresholds for growth. She specifically mentioned the $500 million threshold, which her bank sits just below with $479.3 million in assets as of June 30.
"All those levels of indexing need to be taken into consideration and the tailoring process with a one-time adjustment now to get it right and now the indexing as [Hayes] mentioned, based on GDP," Owen said.
In July, the Federal Deposit Insurance Corp. proposed raising the $500 million level to $1 billion for areas related to audits, internal controls and audit committees.
Community bankers are also calling for uniformity among regulations and thresholds. A challenge with thresholds is that they vary for different regulations, a banker told S&P Global Market Intelligence during the conference.
"We need to maintain a chart to remember all of them," Casper, Wyoming-based Jonah Bank of Wyoming President and CEO Kimberly DeVore told Market Intelligence. Her bank had $527.6 million in assets as of June 30.
"It is easier to analyze a small business loan, tax returns, and personal financials, than it is to assess which level of a regulation we should be adhering to," she added. "My suggestion, adjust them all, but not to a dollar level. Adjust them based on complexity of operations."
As for the $10 billion threshold specifically, DeVore suggested making it $30 billion and "then get down to the business of right-sizing regulations to the size and complexity of the institution. Isn't that what our regulators have said they do or will do for years?"
