Bank regulators in the United States are headed to Congress to tout the benefits of deregulation.
Their argument is that scaling back banking rules and oversight will spark economic activity without creating more systemic financial risks, Reuters reported Thursday (June 4).
Chief regulators from the Federal Reserve, the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency are expected to testify before the House Financial Services Committee Thursday on their efforts to reconsider and relax several bank rules established in the wake of the 2008 financial crisis, according to the report.
“By tailoring requirements to actual risk, focusing supervision on what truly matters, and integrating innovation into the regulatory framework, the Federal Reserve is creating conditions for banks to thrive while maintaining the robust safeguards,” Fed Vice Chair for Supervision Michelle Bowman said in prepared remarks.
Regulators have been reconsidering the stricter rules installed in recent years, contending that tougher standards have kept banks from being able to fully support the economy, the report said. Bowman said the central bank has found reports of many bank deficiencies that were procedural or documentation issues, rather than actual financial risk.
“For over a year, we have been reforming supervision to focus on material financial risks rather than on process-oriented, check-the-box requirements,” FDIC Chairman Travis Hill said in his prepared remarks to the committee.
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That isn’t to say that the hearing won’t cover risks to the banking system. Bowman’s statement also warned that artificial intelligence models have “dramatically accelerated” the identification of banking system vulnerabilities.
In other banking regulation news, a report showed that lenders in the United Kingdom and the U.S. are gaining additional asset capacity thanks to bank deregulation, while banks in the European Union and Switzerland face increased capital requirements.
Deregulation could open up $2.5 trillion in added asset capacity for banks in the U.S. and help foster a 6% increase in return on tangible common equity, Alvarez & Marsal said in its Bank Deregulation Primer.
“What we are seeing now is U.S. banks using the deregulatory agenda to their competitive advantage,” Fernando de la Mora, co-head of Alvarez & Marsal’s EMEA Financial Services practice, said when announcing the report last month. “U.S. banks are already deploying substantial amounts of newly available capital into lending growth, acquisitions, shareholder distributions and technology investment.”
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