Fed Proposes Looser Rules for Large U.S. Banks

The draft proposal, approved by a 3-1 vote at a Wednesday meeting of the Fed 's governing board, would divide big banks into categories based on their size and other risk factors. The term would be reduced to certain capital and liquidity requirements, or see those requirements reduced. They could also, in some cases, be subject to less frequent stress tests.

"These propositions embody an important principle: the character of regulation should match the character of a firm," Fed Vice Chairman for Supervision Randal Quarles said in a statement. Chairman Fed Chairman Jerome Powell also supported the proposal.

Fed governor Lael Brainard issued a statement opposing the proposal, saying the policy changes "weaken the buffers that are core to the resilience of our system" and raise "the risk that American taxpayers will again be on the hook."

The most significant changes in the Fed's proposal would affect banks with assets between $ 100 billion and $ 250 billion, a group that includes

            BB & T
Corp.

, SunTrust, Inc. and others. These firms would not have to follow the so-called liquidity coverage ratio, which requires the firms to hold assets.

The proposal would also give rise to the question of capital gains and losses in their capital levels, which could reduce the amount of capital they should maintain.

Those banks may also be released from the Fed's annual stress tests next year. Wednesday's proposal did not directly address that question, but Mr. Quarles said he expects the Fed to move from a two-year cycle to 2019 as an "off-cycle" year.

Banks with between $ 250 trillion and $ 700 trillion in assets-or other firms that some risk thresholds such as $ 75 trillion in nonbank assets or cross-border exposure-also would like their capital requirements unrealized gains and losses. Under the plan, they would receive a long-sought goal: A relaxed liquidity coverage ratio requirement, about 70% to 85% of the one they currently face.

This group includes U.S. Bancorp.,

            PNC Financial Services Group
Inc.

and Capital One Financial., which have been arguing for years that Fed's liquidity rules treated them too harshly.

The Fed said the liquidity rule was $ 43 billion, or about 2.5% of the $ 100 billion in assets. The impact will vary for individual firms, however. Fed officials said they will continue to "stress test" big banks' liquidity, and some cases stress testing requirements can be strict that the Fed is proposing to relax.

Fed officials say they did not see conclusive evidence about how the liquidity rule changes could affect lending. In general, a financial company following a looser of liquidity rules, and more The firm may also be able to change pricing on deposits, because the budget is in a state of crisis.

Write to Ryan Tracy at [email protected]