Vice Chairman for Supervision Randal K. Quarles At the American Bar Association Banking Law Committee Annual Meeting, Washington, D.C.

"…Emerging Areas for Review
With that update on the familiar, I will turn to my own impressions of what is next for post-crisis regulation. In my early days as the Vice Chairman for Supervision, I asked our staff to conduct a comprehensive review of the regulations in the core areas of reform that I outlined earlier-capital, stress testing, liquidity, and resolution. The objective is to consider the effect of those regulatory frameworks on resiliency and resolvability of the financial system, on credit availability and economic growth, and more broadly to evaluate their costs and benefits. This is a comprehensive and serious process, and work is still underway. I should note, however, that I have already formed views on a few areas that warrant more focus, and that I will be working with my colleagues on the Board to constructively consider.

I will start with the issue of tailoring supervision and regulation to the size, systemic footprint, risk profile, and business model of banking firms. The Federal Reserve has devoted considerable energy in its post-crisis regulatory work to incorporate the tailoring concept in its regulation and supervision across the spectrum of small, medium, and large firms. A recent example of this approach is our late 2017 proposal to simplify capital requirements for small- and medium-sized banking firms. In my view, there is further work for the Federal Reserve and the other banking agencies to do on the tailoring front.

I would emphasize that tailoring is not an objective limited in scope to a subset of the smallest firms. As my colleagues and I have said before, the character of our regulation should match the character of the risk at the institution. Accordingly, we should also be looking at additional opportunities for more tailoring for larger, non-Global Systemically Important Banks, or non-G-SIBs. In this regard, I support congressional efforts regarding tailoring, whether by raising the current $50 billion statutory threshold for application of enhanced prudential standards or by articulating a so-called factors-based threshold. Irrespective of where the legislative efforts land, I believe we at the Federal Reserve have the responsibility to ensure that we do further tailoring for the institutions that remain subject to our rules to ensure that regulation matches the risk of the firm…"

"... I believe it is time to take concrete steps toward calibrating liquidity requirements differently for large, non-G-SIBs than for G-SIBs. And I see prospects for further liquidity tailoring in that the content and frequency of LCR reporting are the same for the range of firms currently subject to the modified LCR as they are for the large non-G-SIBs that are subject to the full LCR. We should also explore opportunities to apply additional tailoring for these firms in other areas, such as single counterparty credit limits and resolution planning requirements.

Another area that I think we should revisit are the "advanced approaches" thresholds that identify internationally active banks. These thresholds are significant not only for identifying which banking firms are subject to the advanced approaches risk-based capital requirements, but also for identifying which firms are subject to various other Basel Committee standards, such as the supplementary leverage ratio, the countercyclical capital buffer, and the LCR. The metrics used to identify internationally active firms-$250 billion in total assets or $10 billion in on-balance-sheet foreign exposures-were formulated well over a decade ago, were the result of a defensible but not ineluctable analysis, and have not been refined since then. We should explore ways to bring these criteria into better alignment with our objectives.

A third area in which I will be working with my Board colleagues is a meaningful simplification of our framework of loss absorbency requirements. There are different ways to count the number of loss absorbency constraints that our large banking firms face-which is perhaps in itself an indication of a surfeit of complexity if we can't be perfectly sure of how to count them-but the number I come up with is 24 total requirements in the framework..."

"...Finally, as I mentioned earlier, an enhanced stress testing transparency package was released for public comment last month. I personally believe that our stress testing disclosures can go further. I appreciate the risks to the financial system of the industry converging on the Federal Reserve's stress testing model too completely, so I am hesitant to support complete disclosure of our models for that reason..."

The original speech is here.
Information is taken from the Federal Reserve System’s site.