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Increased hope for raising banks' asset thresholds

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Increased hope for raising banks' asset thresholds

Gary Cohn, chief economic adviser to the White House, said momentum is growing for significant regulatory relief, including changes to asset thresholds for banking regulation.

But while bankers remain optimistic, there has been little realization of the expected wave of regulatory relief.

Speaking Oct. 16 at the American Bankers Association, Cohn said the White House and congressional leaders have worked on legislation to increase the threshold designating systemically important financial institutions from $50 billion to more than $200 billion. Cohn said the new threshold could be as high as $250 billion, calling $225 billion the midpoint of current discussions, adding that "there is a shot" legislation could happen before year-end.

Bankers and professionals at the conference in Chicago say there is greater optimism for regulatory relief but the landscape remains too uncertain to alter current operations. John Gorman, partner for Luse Gorman, a top law firm for bank deal activity, said the $50 billion asset threshold has prevented some deals as banks feel the regulatory costs of crossing the threshold are too great.

"I think there's more hope now, but you can't do anything until it actually changes," Gorman said, adding that banks cannot yet explore strategic decisions on the assumption thresholds would increase. "You need to approach it now like it's not going to happen."

Cohn was also generally enthusiastic about broader regulatory relief for banks and the prospect of tax reform. He said President Donald Trump is committed to tax relief that lowers the corporate tax rate and delivers tax relief to the middle class but would be willing to compromise on other provisions. Cohn said the strong economic situation will grow even faster if Congress could pass tax relief and approve various regulatory nominations. The Trump administration has been able to pass some nominations, but bankers are still reporting difficulties from Dodd-Frank Act compliance.

While community bankers have yet to see real regulatory relief and economic growth remains relatively sluggish, there is plenty of optimism that the economy will ramp higher in short order, said Robert Wayne McPherson, managing director for StoneCastle Partners LLC, an asset manager specializing in small-bank investments. McPherson said Cohn's enthusiasm for current economic conditions might not translate to what small banks are seeing on a day-to-day basis but that there are signs of hope for the near-future.

"Some have not seen the economic improvement, but they do have the same positive economic outlook," McPherson said. "If they haven't seen the growth yet, they're expecting it and they see it on the horizon."