The Federal Reserve is considering a regulatory change that could substantially increase how large a US bank can become before asset size alone pushes it into a tougher supervisory category.
The central bank is working on a plan that could raise the current $700 billion asset threshold for Category II banks to roughly $960 billion, according to four people familiar with the matter cited by Reuters. Three said the Fed could issue a proposal later this year.
The current Federal Reserve framework classifies non-systemically important banking organizations with at least $700 billion in average consolidated assets as Category II. Banks can also enter Category II with at least $100 billion in assets and $75 billion in cross-jurisdictional activity, meaning raising the asset threshold would not eliminate the alternative risk-based trigger.
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The change would create significant additional balance-sheet room for some of the country’s largest regional lenders.
US Bancorp reported $725.9 billion in period-end assets at June 30, already above the current $700 billion figure. Capital One Financial reported $673.8 billion, PNC Financial Services reported $616.0 billion, and Truist Financial reported $556 billion.
All four were identified as potential beneficiaries of the contemplated change, which could allow additional growth without asset size alone triggering some higher-level capital, liquidity, reporting, and supervisory requirements.
The Fed is also considering moving some regulatory requirements currently associated with the $100 billion threshold closer to $150 billion, Reuters reported. Not every rule can move administratively because some requirements are established by statute.
The existing Fed framework places banking organizations with at least $100 billion in assets into its large-bank categorization system, with requirements increasing based on size and other measures of complexity and risk.
Bowman laid out the rationale for revisiting those fixed numbers in January, arguing that thresholds can become increasingly restrictive simply as nominal bank balance sheets and the broader economy grow.
“A simple solution would be to adjust thresholds by nominal GDP,” Bowman said.
The potential change could also alter merger calculations. Reuters’ sources said higher thresholds may encourage midsized lenders that previously avoided acquisitions because a deal could push them into a more demanding regulatory category.
