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US Federal Reserve unveils proposal to ease regulations for larger banks

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PNC Financial Corp, Capital One Financial Corp, Charles Schwab, and US Bancorp(above) would enjoy reduced liquidity and compliance requirements under the proposal.

[WASHINGTON] The US Federal Reserve unveiled a proposal on Wednesday that would ease regulations for banks with less than US$700 billion in assets.

PNC Financial Corp, Capital One Financial Corp, Charles Schwab, and US Bancorp would enjoy reduced liquidity and compliance requirements under the proposal, which the Fed board is set to vote on Wednesday morning. Several smaller banks would see further reduced regulation as the Fed implements changes ordered in a bank deregulation law Congress passed in May.

The proposal establishes four tiers of regulation for banks with over US$100 billion in assets, as the central bank seeks to tailor rules for larger firms. The proposal would reserve the strictest rules for US globally systemic banks, and step down requirements for smaller and less complex firms.

The law easing bank rules directed the Fed to trim regulations for banks with less than US$250 billion in assets, and also gave the central bank discretion to further modify rules for larger banks as it saw fit. Wednesday's proposal goes beyond the US$250 billion threshold authorized by Congress, as it aims to provide relief to all but the nation's largest banks.

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According to the proposal, banks with between US$250 billion and US$700 billion in assets could enjoy a reduced "liquidity coverage ratio," which requires banks to hold high-quality assets that could easily be turned into cash. The Fed estimated the proposal could reduce that ratio by as much as 30 per cent for those firms.

Smaller banks would be subjected to less frequent "stress tests" of their capital plans by the Fed, and face even less restrictive liquidity and capital requirements.

Randal Quarles, the Fed's vice chair for supervision, said the changes should "meaningfully" reduce compliance costs for banks without injecting significant new risk into the banking system, according to prepared remarks.

"These proposals embody an important principle: the character of regulation should match the character of a firm," he said.

REUTERS