By Jeff Bater
Federal Reserve Chair Janet Yellen signaled she would consider a Trump administration recommendation to grant community banks a break on debt policy.
Yellen, appearing July 12 before the House Financial Services Committee, was asked whether she agreed with raising the asset threshold in the Fed’s Small Bank Holding Company Policy Statement to $2 billion from its current $1 billion.
“I think that’s something we could look at,” she told Rep. Trey Hollingsworth (R-Ind.) as he questioned her about finding relief for small banks from financial regulations.
Treasury Secretary Steven Mnuchin issued a report in June proposing the asset threshold be doubled, to $2 billion. President Donald Trump had requested the report as part of a larger plan to deregulate the financial services industry.
The policy statement facilitates transfer of ownership of small banks by allowing their holding companies to operate with higher levels of debt than would normally be permitted. Aside from enabling bank acquisitions, an increase in the threshold would allow community banks to raise capital by issuing debt and increase lending.
Yellen also reiterated support for giving small banks relief from the Volcker Rule.
A Dodd-Frank rule prohibits banks from conducting certain trading activities with their own accounts. Most community banks – those lenders with assets below $10 billion – do not engage in proprietary trading and have been given accommodations from the rule’s compliance program requirements.
However, the June Treasury report pointed out small banks have still been required to expend “considerable resources” to ensure their activities do not constitute prohibited proprietary trading.
“Banks with less than $10 billion in assets should be exempted from the rule entirely,” the report said.
The Independent Community Bankers of America has called for a Volcker Rule exemption for banks that are not systemically important. And Yellen has suggested in the past Congress might want to consider exempting community banks from the rule.
“I am very supporting of trying to reduce the burdens on community banks,” she said at the hearing July 12. “We have suggested there are things Congress could do to help reduce burdens – for example, the Volcker Rule.”
Nonetheless, Yellen isn’t necessarily on board with everything in the Mnuchin report. She emphasized the importance, for instance, of regulatory scrutiny over leveraged lending by banks while under questioning on the topic.
In 2013, the Fed, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency issued guidance that attempted to set forth their expectations for banks’ risk management of leveraged lending.
Banks have complained about ambiguity in the guidance. The Treasury report suggested the agencies reissue the guidelines for public comment.
“Following the public comment process, the guidance should be refined with the objective of reducing ambiguity in the definition of leveraged lending and achieving consistency in supervision, examination and enforcement,” the deregulatory blueprint said.
When asked about potentially retracting the guidance, Yellen said it was put into place for a very good reason. “We were concerned about underwriting practices for those kinds of loans, and want to make sure lending is safe and sound,” the Fed chair said.
To contact the reporter on this story: Jeff Bater in Washington at email@example.com
To contact the editor responsible for this story: Michael Ferullo at MFerullo@bna.com
Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)