A federal banking regulator's approval represented the final cleared hurdle for two rules that will revamp how banks, foreign and domestic, are regulated in the U.S.
Members of the Federal Deposit Insurance Corp. board approved the pair of rules that will overhaul certain liquidity and capital requirements, as well as how often banks must submit "living wills" — plans that detail how firms would be resolved during hypothetical bankruptcies.
The FDIC voted 3-1 on both proposals, with FDIC board member Martin Gruenberg, an Obama administration appointee, acting as the lone dissenter on each.
The Federal Reserve approved the final rules on Oct. 10 that create a new regulatory framework that places banks with at least $100 billion in assets into four categories based on size and complexity.
While the final rules approved by the regulators largely keep the most stringent regulations in place for the eight U.S.-based global systemically important banks, or G-SIBs, in group one, they reduce liquidity coverage ratios for smaller domestic banks and set up a new regulatory structure for foreign banks with U.S. operations.
The U.S. G-SIBs did receive some relief with respect to how often they must submit living wills. The rule change allows big banks to file on a two-year cycle instead of the previously enforced one-year cycle. Every other year, those firms must file smaller plans with fewer details.
Foreign and domestic banks in the second and third tiers will submit resolution plans every three years.
Domestic banks in the fourth category will no longer have to file living wills, while other foreign banks will file "reduced" resolution plans every three years. The reduced plans will detail any changes that had occurred to banks since their last filings.
"[The rule] represents meaningful and appropriate tailoring to capital and liquidity standards while ensuring that the largest most systemically important banks remain subject to the most rigorous requirements," FDIC Chair Jelena McWilliams said in a prepared statement.
McWilliams said the rules strike an appropriate balance to ensure the largest banks have sufficient liquidity assets to withstand periods of stress while taking into account the potential broader market impacts of those requirements.
However, Gruenberg, a former FDIC chairman, said the rules will "unnecessarily weaken" post-crisis protections for the financial system and "place the deposit insurance fund at greater risk."
Specifically, he said one provision of the rule that will allow some banks to opt out of reporting unrealized gains and losses on securities will allow banks to appear more strongly capitalized than they actually are, similar to the case in the run-up to the 2008 financial crisis.
"I believe this rule reflects a serious failure to recognize the very significant resolution challenges and potential for systemic disruption posed by the failure of these firms," Gruenberg said.