US Federal Deposit Insurance Corporation Vice Chairman Thomas M. Hoenig discussed the decline of traditional community banks over the last thirty years and the resulting concentration of the US financial system in a few large financial firms. Hoenig outlined his recommendation of a model of regulatory relief that would provide greater flexibility to banks operating in the United States. Notably, Hoenig’s framework would abandon references to size thresholds, but would instead grant regulatory relief to banks that: (i) hold no trading assets or liabilities; (ii) hold no derivatives positions other than interest rate and foreign exchange derivatives; (iii) have a total notional value of all their derivatives exposures (including cleared and non-cleared derivatives) of less than $8 billion; and (iv) maintain a ratio of GAAP tangible equity-to-assets of at least 10 percent. He suggested that such banks should potentially be exempt from Basel capital standards, stress testing requirements, and certain reporting requirements.
View Vice Chairman Hoenig’s speech.
