The Office of the Comptroller of the Currency (OCC) has proposed significant changes to its regulatory framework, aiming to limit the toughest supervision standards to only the largest financial institutions. This proposal, announced recently, seeks to raise the asset threshold for heightened prudential standards from $50 billion to $700 billion. If implemented, this change would reduce the number of banks subject to these rigorous requirements from 38 to just eight.
Under the new rule, which is open for public comment for 60 days following its publication in the Federal Register on December 30, 2023, the OCC argues that the current standards have become excessively burdensome for mid-size banks. The agency contends that such stringent oversight is only warranted for the largest institutions that pose systemic risks to the financial system.
The proposed adjustments reflect a broader shift within the OCC towards a more lenient regulatory environment, aligning with the vision expressed by Treasury Secretary Scott Bessent. Bessent has emphasized the need for regulatory bodies to harmonize their approach to deregulation. In a speech at the Economic Club of New York in March 2024, he stated that he is coordinating actions across banking agencies to ensure a unified deregulatory front.
Comptroller of the Currency Jonathan Gould has interpreted this directive as a call to refocus bank supervision. He has advocated for a model that prioritizes business-centric practices over the stringent perimeter policing established in the aftermath of the 2008 financial crisis. Gould noted that the regulations enacted post-crisis have inadvertently narrowed the scope of banking relevance, leading to decreased market share for traditional banks.
The OCC’s proposal outlines that banks newly exempt from heightened standards would still be expected to maintain robust risk management frameworks. The agency indicated that this shift would enable employees at these institutions to dedicate more time to executing their firms’ strategies rather than complying with extensive regulatory obligations.
In terms of financial impact, the OCC estimates that the proposed changes could result in significant cost savings for banks, potentially amounting to between $54 million and $123 million collectively. This estimate is based on an assumption of a 10 percent reduction in staff, which would reflect the anticipated streamlining of operations as a result of the regulatory relaxation.
While the OCC is moving towards this new framework, it is also keen on encouraging innovation within the banking sector. Gould has acknowledged the potential role of qualified financial technology firms (fintechs) in expanding the industry’s reach, while underscoring the necessity for comprehensive oversight of these entities.
As the OCC seeks to reshape its regulatory landscape, the implications of this proposed rule are likely to be profound, affecting not only the banks directly involved but also the broader financial ecosystem. The ongoing dialogue about deregulation, particularly in the context of the Dodd-Frank Act, will continue to influence policymaking as the agency navigates these complex issues.
