TeresaCurran of the San Francisco Federal Reserve recognizes that small institutionsface a significant regulatory burden and wants community banks to know that sheis working to offer them some relief.
Curran,senior vice president and division director, financial institution supervisionand credit at the San Francisco Fed, delivered that message April 4 tocommunity bankers in attendance at the WIB Annual Conference for BankPresidents, Senior Officers & Directors. Curran noted that the majority ofregulations to surface from the landmark Dodd-Frank Act targeted the nation'slargest institutions, yet some of those expectations "have or have beenperceived to trickle down" to small institutions. Whether the increasedregulatory burden for small banks is merely perception or reality, Curranemphasized that regulators are aware of the issue.
"Wehear you, we understand it and we're very much concerned about it," Currantold bankers in attendance.
Curransaid regulators are currently working to tailor reforms coming out ofDodd-Frank to more accurately assess the risk posed to small banks. This is anissue that all the regulators are thinking about and working toward, she said,noting that community banks play an incredibly important role in supportingsmall businesses and individuals. Curran said it is now clear that aone-size-fits-all regulatory model does not work and threatens community banks'vital role in helping the economy fully recover.
Curran'scomments follow a number of efforts made by regulators and lawmakers in recentmonths to reduce the regulatory burden facing small banks. The FederalFinancial Institutions Examination Council in September 2015 regulators' plans to simplifyregulatory reporting for community banks. The proposals aimed to eliminate orrevise a number of data items on the call reports that community banks have tofile every quarter. That effort has been delayed but has not been exhausted.
InFebruary 2016, the House introduced a bill that would allow well-capitalizedcommunity banks to submit an abbreviated call report semiannually. In earlyMarch, Rep. Edwin Perlmutter, D-Colo., introduced a proposed bill seeking to provide regulatoryrelief for banks that hold no trading assets; hold no derivative positionsother than interest rate and foreign exchange derivatives; have less than $3billion in total value of all their derivatives exposures, including clearedand non-cleared derivatives; and maintain a ratio of GAAP equity-to-assets ofat least 10%. Under the bill, banks could be eligible for relief from the BaselIII rules, regular stress-testing requirements and could see their examinationcycle extended from 12 months to 18 months. And a few weeks later, Rep. JebHensarling, R-Texas argued that banks meeting Tier 1 capital requirementsshould get relief from Dodd-Frank and Basel III regulations.
Currannoted that regulators might have the opportunity to make other changes throughthe Economic Growth and Regulatory Paperwork Reduction Act, or EGRPRA, whichrequires regulators to review outdated, unnecessary or overly burdensomeregulations every 10 years. That review is currently underway, and Curran notedthat the timing is particularly important, coming more than five years afterthe passage of sweeping financial reforms.
Curranfurther said that she is working to streamline the regular examination processwhile considering changes to community bank capital requirements. She alsobelieves there is concern among smaller banks that stress-testing expectationsemanating from the large banks are trickling down, but aimed to quash thosefears.
Curransaid banks with strong risk management policies can often satisfy theirregulators simply by showing that they have subjected their balance sheets to afew different stress scenarios. She believes that some of the push for smallbanks to adopt more complex stress-testing models has come from vendors tryingto sell institutions their products.
Curranalso remarked that banks will often gripe about regulatory practices beingemployed in the field that they believe stand counter to any proposed effortsto ease regulatory burdens. For instance, an examiner might suggest that a bankadopts what they consider a best practice even if it is not required for theinstitution. Curran said those adoptions can often benefit the bank inquestion, but recognized that bankers could easily become confused by suchdirections. While she committed to working further to reduce unnecessaryregulatory burdens, she also asked community bankers to engage in constructivedialogue with their examiners and clarify whether such suggestions aresomething just to consider or something that needs to be in place before theirnext exam.
Curranargued that community banks cannot afford not to have this conversation rightnow given the regulatory burden they face.
"Mymessage to you this morning is: We hear you. We're trying to get to a betterplace," Curran said.