Perlmutter Introduces Regulatory Relief Legislation for “Traditional Banks”

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Washington, DC, February 29, 2016 | comments


Media Contact: Ashley Verville | (303) 274-7944

Perlmutter Introduces Regulatory Relief Legislation for “Traditional Banks”

Helps community banks and other non-systemic banksstruggling with increased regulatory burden and costs

U.S. Rep. Ed Perlmutter (CO-07) introduced legislation today to provide targeted relief to “traditional banks” - institutions that do not require extra regulatory scrutiny or pose a systemic risk to the economy. The Traditional Banking Regulatory Relief Act is modeled after a proposal from Tom Hoenig, Vice Chairman of the Federal Deposit Insurance Corporation (FDIC) and former President of the Kansas City Federal Reserve.

Rather than drawing arbitrary asset thresholds to determine the applicability of banking regulations, the legislation provides relief to institutions based on complexity and activities. These are institutions who do not engage is risky activities and do not pose a threat to the economy, but rather are in the business of taking deposits and making loans to customers in their communities.

Specifically, a financial institution must meet the following requirements to be eligible for regulatory relief: 1) Hold no trading assets; 2) Hold no derivative positions other than interest rate and foreign exchange derivatives; 3) Have less than $3 billion in total value of all their derivatives exposures, including cleared and non-cleared derivatives (swap dealer de minimis exemption levels); and 4) Maintain a ratio of GAAP equity-to-assets of at least 10 percent (simple leverage ratio). The legislation allows for banks with a simple leverage ratio of 8 percent or higher to be eligible for the relief but providing that within 18 months they increase their ratio to 10 percent to remain eligible.

“Community banks were not the cause of the financial crisis of 2007-2008, yet they are now forced to bear the burden and expense of complying with new regulatory requirements in place to prevent future crises” said Rep. Perlmutter. “This legislation will help ease the regulatory burden for the vast majority of banks who engage in traditional banking activities and conduct their activities in a safe and sound manner. Providing targeted relief for our nation’s Main Street banks enables them to focus more resources on lending to small businesses, financing mortgages and promoting economic activity in our communities.”

These banks would be eligible for relief from significant costs, including the Basel III Risk-Based Capital Standards that were originally intended to apply to the largest interconnected internationally active banks. Other measures include relief from company-run stress testing requirements; an increased examination cycle from 12 months to 18-months; and exemptions from submitting certain call report schedules.

“When Dodd-Frank was enacted five years ago, it provided an important regulatory scheme to protect taxpayers and reduce the risk of another financial crisis,” continued Perlmutter. “But we must recognize the difference between institutions that conduct their activities in a safe and sound manner and those institutions that expand their activities beyond retail and commercial banking. This legislation helps to do just that by helping our low-risk community banks better thrive in a competitive low-interest rate environment. In fact, my legislation provides some relief to almost 90 percent of all banks in Colorado.”

Original co-sponsors of the bill include Reps. Stephen Lynch (MA-08), Juan Vargas (CA-51), Danny Heck (WA-10), and Rubén Hinojosa (TX-15).


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