Tags: federal reserve | tarullo | banks | oversigh

Fed's Tarullo Pushes for Simpler Oversight of Community Banks

Thursday, 30 Apr 2015 09:51 AM

Federal Reserve Governor Daniel Tarullo told community bankers he wants to simplify their oversight because they don’t pose a risk to the U.S. financial system.

Tarullo, in comments prepared for a speech in Washington on Thursday before the Independent Community Bankers of America, said some capital and examination requirements can be eased when the benefits are outweighed by the banks’ cost of compliance.

“We should explore whether we can achieve the safety and soundness purposes of capital regulation in a simplified way,” said Tarullo, who leads the Fed’s work on regulatory issues. The potential failure of a community bank “self-evidently poses no risks to the financial system.”

Tarullo said some potential risks remain for community banks, including high-volatility commercial real estate loans and lenders’ reliance on third-party providers.

Community banks are pushing back against rules imposed after the 2008 financial crisis, arguing too many were designed for the large lenders that needed taxpayer bailouts.

Tarullo said he agreed in many cases, using variations of the word “simplify” at least eight times in his prepared text.

Community banks could be excluded entirely from “a few” provisions of the Dodd-Frank law, he said.

The Volcker rule restrictions on proprietary trading and executive pay requirements “present almost prototypical cases in which minimal potential safety and soundness benefits are outweighed by the compliance costs faced by those thousands of banks,” he said.

Real Issues

“It would be preferable to relieve both supervisors and community banks from examining compliance with these kinds of requirements in order to concentrate resources on the real issues presently faced by these institutions, such as cybersecurity and interest-rate risks,” Tarullo said.

He described community banks as having $10 billion or less in assets and said most are below $1 billion.

The large banks the Fed supervises under Dodd-Frank have more than $50 billion in assets.

The Fed must be wary of the risks of commercial real estate lending by community banks, “but we can look for ways to simplify the specific capital requirements while ensuring that appropriate capital buffers exist,” he said.

Tarullo said Fed examiners have seen “increased consumer compliance risk where community banks move into products that are less congruent with bank-customer relationships,” such as prepaid cards or credit card add-on products.

“Risks can arise where a bank relies upon third-party providers for core banking services or products that the bank does not have the resources or expertise to undertake in-house.”

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Federal Reserve Governor Daniel Tarullo told community bankers he wants to simplify their oversight because they don't pose a risk to the U.S. financial system.
federal reserve, tarullo, banks, oversigh
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2015-51-30
Thursday, 30 Apr 2015 09:51 AM
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