All Things FinReg


On June 22, senior officials from the three primary federal bank regulatory agencies—the Office of the Comptroller of the Currency (OCC), the Federal Reserve Board (Board), and the Federal Deposit Insurance Corporation (FDIC)—testified before the Senate Committee on Banking, Housing and Urban Affairs (Committee) on, among other things, financial services reform matters. In the wake of the Financial CHOICE legislation (CHOICE Act), which recently passed the House of Representatives, and the more recent US Department of the Treasury report (Treasury Report) recommending changes to the current financial regulatory framework, financial reform’s legislative center of gravity has now moved to the Senate, which is currently trying to develop its own version of such legislation.

The senior officials, in describing the three federal agencies’ views and recommendations on financial reform, did not recommend radical changes to the current financial regulatory framework. Importantly, in some contrast to the Treasury Report’s recommendations—which were themselves more measured than the CHOICE Act—the agency officials generally agreed that the existing framework for systemically important bank regulation and supervision be left in place, albeit with some changes. Of the agency officials, Acting Comptroller of the Currency Keith Noreika was more outspoken in his recommendations for financial reform legislation, broadly endorsing the Treasury Report’s recommendations and offering some relatively major national bank–specific deregulatory measures. Federal Reserve Board Governor Jerome Powell and FDIC Chair Martin Gruenberg were more circumspect in their respective legislative recommendations, generally advocating more incremental changes in the financial framework with a focus on easing the regulatory burdens on midsize and small banks. However, some points of commonality emerged in the agencies’ legislative recommendations, including the following:

  • The Volcker Rule. All three agencies recommended changes to the Volcker Rule—which broadly prohibits banking organizations from engaging in proprietary trading and private investment fund sponsorship and ownership—that would exempt smaller banking organizations, or those without significant trading operations, from its requirements and simplify its applicability.
  • Smaller Bank Regulatory Relief. The agencies variously supported, among other things, raising the $10 billion asset threshold for banking organizations required to conduct banks’ annual Dodd-Frank Act stress tests, and raising the $1 billion threshold for banks eligible for an extended examination cycle.


The agency officials’ measured recommendations were offered against the backdrop of steps already being taken at the regulatory agency level to simplify and ease the burden of financial regulation on smaller banking organizations. These measures include the proposed simplification of regulatory capital requirements for small banks, and an increase in the efficiency and transparency of the large bank supervision process in areas such as stress testing and capital assessment and resolution (living will) planning.

We see two key messages to be taken from the agency officials’ testimony:

  • They do not see the need for the more radical changes to the financial regulatory framework of the sort proposed in the CHOICE Act—although the OCC would be more aggressive than the Board and the FDIC along these lines—and to a lesser extent in the Treasury Report.
  • Meaningful measures to improve the quality and simplicity of financial regulation can be effectively implemented at the regulatory agency level. In this sense, the agencies’ views could also be viewed as a culmination of a “move to the center” on financial regulatory reform proposals, beginning with the CHOICE Act’s far-reaching proposals and continuing with the more modulated proposals in the Treasury Report.

We would expect that the agencies’ positions on these matters will be cited by those (primarily Democrats) who question the advisability of wholesale financial regulatory reform. The agency officials’ testimony, however, signals that compromise between the political parties on these issues may be possible: the agencies’ thoughtful and measured views on matters such as the Volcker Rule and regulatory relief for smaller banking organizations might contribute to a way forward on those fronts. At the same time, it is possible that some of these more incremental changes could be implemented as regulatory changes based on a consensus among the agencies, rather than changes in the law that would require some bipartisan support in Congress.