Fed Proposes Raising Bank Oversight Thresholds to Spur Consolidation

The US Federal Reserve is planning to raise bank oversight thresholds, allowing some lenders to avoid costly additional regulation and potentially spurring consolidation.

The central bank is expected to propose reindexing the thresholds where banks become subject to stress tests of their balance sheets, liquidity, capital, and other more stringent rules, to account for inflation and economic growth. The current rules impose stricter requirements when a bank reaches $100 billion in assets, stepping up at $250 billion and again at $700 billion.

Lenders say those thresholds, set in 2019, haven't kept pace with the economy, subjecting banks to increasingly stringent oversight that exceeds the risks they pose. The Fed is considering reindexing the highest threshold closer to $1 trillion and some of the requirements triggered by the lower threshold closer to $150 billion.

Banks such as U.S. Bancorp, Capital One, PNC Financial, and Truist could benefit from this change, as they are closest to the $700 billion threshold, giving them more room to grow without incurring some of the toughest Fed oversight.