The Federal Reserve Board ("FRB") proposed a rule that would tailor the application of prudential standards to U.S. bank holding companies and apply enhanced standards to certain large savings and loan holding companies. The FRB, FDIC, and Office of the Comptroller of the Currency (collectively, the "agencies") separately proposed changes that would tailor the application of the agencies' capital and liquidity rules to large U.S. banking organizations.

Both proposals would establish categories of prudential standards in order to align requirements with a firm's risk profile. According to the agencies, thresholds based on risk-based indicators, such as size, cross-jurisdictional activity and reliance on wholesale funding, would be used to determine the appropriate set of standards for a particular bank. The categories are:

  1. Category I: U.S. global systemically important banks ("GSIBs") would remain subject to the "most stringent standards." GSIBs pose the greatest risks to U.S. financial stability because of their systemic risk profiles.
  2. Category II: Banks of global scale (i.e., with $700 billion or more in total assets or $75 billion or more in cross-jurisdictional activity) would be subject to stricter prudential standards applicable to "very large or internationally active banking organizations" based on non-bank assets, short-term wholesale funding, or off-balance sheet exposures.
  3. Category III: Banks with $250 billion or more in assets, or firms with at least $100 billion in assets that surpass certain risk thresholds, would be subject to enhanced standards tailored to the risk profile of these banks.
  4. Category IV: Most banks with $100 billion to $250 billion in total assets would be subject to reduced requirements. These banks would not be subject to standardized liquidity requirements and would have significantly reduced stress-testing obligations.

The agencies' proposal would tailor requirements under the agencies' capital rule, the liquidity coverage ratio rule and the proposed net stable funding ratio rule for large U.S. banking organizations. The FRB-only proposal would tailor prudential standards regarding capital stress testing, risk management, liquidity risk management, liquidity stress testing, liquidity buffer requirements, and single-counterparty credit limits. In addition, the FRB-only proposal would apply enhanced prudential standards to certain large savings and loan holding companies. However, such standards would not apply to savings and loan holding companies that are predominantly engaged in insurance or commercial activities. The proposed changes would not apply to the U.S. operations of foreign banking organizations, including at the intermediate holding company level.

Comments on both proposals must be received by January 22, 2019.

Click here for a visual depiction of these proposed requirements, as prepared by FRB staff.

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