On July 18, 2016, Senators Tim Kaine (D-Va) (the Democratic vice-presidential nominee), Mark R. Warner (D-Va.), Gary C. Peters (D-Mich.) and Robert P. Casey (D-Pa.) wrote a letter to the heads of the US Federal Reserve Board, the FDIC and the OCC, requesting an exemption for certain large regional banks from the requirements of the liquidity coverage ratio and the advanced approaches risk-based capital rules. In their letter, the senators argue that it would be unfair for large regional banks to be subjected to the same LCR and capital rules requirements as are applied to riskier, more complex, systemically important banks.
Currently, because LCR reporting requirements are based on an asset threshold test, some large regional banks are subject to heightened LCR requirements, which requires, among other things, certain daily reporting of liquidity levels. Large regional banks may also, by virtue of size or foreign exposure, be subject to the “advanced approaches” capital requirements that dictate capital reserves a bank must hold to cover potential losses. The senators argue that regional banks should be exempted from complying with the burdens of both the LCR requirement and the Advanced Approaches requirements because they do not share the “same risk profile or complexity” as systemically important banks. The Senators also stated generally that the regulatory regime should move away from reliance on an internal models approach on the theory that such reliance obscures a bank’s financial status.
The full text of the letter is available at: http://online.wsj.com/public/resources/documents/WarnerLetter07-19-2016.pdf.