On July 18, 2018, U.S. Board of Governors of the Federal Reserve System Vice Chairman for Supervision, Randal Quarles, discussed the tailoring of supervision and regulation for large financial institutions. Vice Chairman Quarles noted that post-crisis regulations made the financial system demonstrably stronger and more resilient, and that there was some degree of tailoring that occurred in the initial creation of the post- crisis regulatory framework. Vice Chairman Quarles stressed that while steps have been taken since to improve the efficiency and efficacy of regulation, more can be done to streamline this framework. He noted that there are still improvements that can be made to allow for greater differentiation in the supervision and regulation of large firms and further tailoring, a theme he has reiterated in several prior speeches.
Vice Chairman Quarles discussed the mandate inherent in the Economic Growth, Regulatory Relief, and Consumer Protection Act to re-evaluate how financial institutions with total assets between $100 and $250 billion are regulated. He noted that to date, the tailoring of regulation and supervision has focused largely on differentiation by asset size. While the size of a financial institution is one factor to consider when tailoring regulation and supervision, Quarles stressed the importance of considering other factors including complexity and interconnectedness for which the use of short-term wholesale funding and cross-border activity may serve as proxies. He also discussed the possibility of streamlining of the regulatory and supervisory framework for financial institutions that have over $250 billion in total assets, but are below the G-SIB threshold. In closing, Quarles stated that the Federal Reserve Board should make it a priority to issue a proposed rule regarding the tailoring of enhanced prudential standards for large financial institutions, and that they will move more quickly than the statutory 18-month deadline for issuing such a proposed rule.
The full text of Vice Chairman Quarles's remarks is available at: https://www.federalreserve.gov/newsevents/speech/quarles20180718a.htm.
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