Board of Governors of the Federal Reserve System ("FRB") Chair Janet L. Yellen asserted that the financial condition of large, regional and community banking organizations has "strengthened significantly since the crisis," but emphasized that smaller banks should be subject to less stringent standards than the largest and most complex firms.

In testimony before the Financial Services Committee at the "Semi-Annual Testimony on the Federal Reserve's Supervision and Regulation of the Financial System" hearing, Chair Yellen summarized recent initiatives by the FRB to strengthen the regulation and supervision of "the largest financial institutions." She highlighted the: (i) implementation of more stringent capital requirements for large banking organizations; (ii) adoption of the liquidity coverage ratio; (iii) proposal to establish single-counterparty credit limits; (iv) proposal to establish a Net Stable Funding Ratio; and (v) creation of the Large Institution Supervision Coordinating Committee.

Chair Yellin described the results of the FRB recent review of its Comprehensive Capital Analysis and Review ("CCAR") program, and reported that the FRB is considering replacing the existing "capital conservation buffer" with a "risk-sensitive, firm-specific buffer that is sized based on stress test results." She noted the recent FRB proposal to simplify the CCAR requirements for smaller Bank Holding Companies.

Chair Yellin also described proposals to make "Global Systemically Important Banks" more resolvable by imposing "Total Loss-Absorbing Capacity" and living will requirements. She noted that "[w]hile the five firms that received joint deficiencies are required to fix those deficiencies by October 2016, all of the firms that received agency feedback in April are required to submit a full resolution plan by July 1, 2017." Chair Yellen explained that the plans will require firms "to address all identified shortcomings, follow all guidance provided by the agencies, and meet all statutory and regulatory requirements for their resolution plans."

Chair Yellen declared:

[O]ur post-crisis approach to regulation and supervision is both forward-looking and tailored to the level of risk that firms pose to financial stability and the broader economy. Standards for the largest, most complex banking organizations are now significantly more stringent than standards for small and medium-sized banks, which is appropriate given the impact that the failure or distress of those firms could have on the economy.

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