U.S. Sen. Katie Britt (R-AL) introduced legislation this week that seeks to update asset-based thresholds in federal banking law.
Many of the asset thresholds Congress established to tailor enhanced federal banking regulations are fixed dollar amounts that do not automatically keep pace with the U.S. economy, Britt said. As banks grow with the economy, they can cross these thresholds and become subject to significantly more complex and costly regulatory requirements even if their relative size, business model, and risk have not meaningfully changed.
The Tailoring and Indexing Enhanced Regulations (TIER) Act would make a one-time adjustment to certain key statutory thresholds to reflect historical economic growth. It would also establish a process for periodically updating covered thresholds going forward.
“Bank regulation should be based on an institution’s actual size, complexity, and risk, not on arbitrary thresholds that become increasingly outdated with every passing year,” Britt said. “When our economy grows but these thresholds remain frozen in place, banks can be pushed into regulatory categories that Congress never intended for them to be simply because of economic growth. The TIER Act provides a commonsense solution that preserves strong safety and soundness standards while ensuring our regulatory framework remains appropriately tailored and grounded in economic reality.”
Britt noted that when banks are required to hold additional capital solely because they have crossed an outdated regulatory threshold, that is capital they cannot fully put to work elsewhere in the economy. That, in turn, can reduce banks’ capacity to make loans. The TIER Act would help ensure regulatory requirements remain aligned with an institution’s actual size and risk.
The TIER Act would also require the Federal Reserve to evaluate whether nominal gross domestic product or the Consumer Price Index is the more appropriate measure for each covered threshold and periodically adjust those thresholds to reflect future economic growth.