The Office of the Comptroller of the Currency (OCC) has announced a significant shift in its regulatory approach, proposing to exempt all but the largest national banks from the most stringent post-financial crisis oversight. Under the new rule, the asset threshold for heightened prudential standards would increase from $50 billion to $700 billion, reducing the number of banks subject to these standards from 38 to just 8.
This move aligns with Treasury Secretary Scott Bessent‘s ongoing efforts to promote deregulation across financial institutions. The rule, which is currently open for public comment, aims to relieve mid-sized banks from what the OCC describes as excessively burdensome standards that primarily apply to the largest, most complex institutions posing systemic risks.
The OCC plans to release the proposal for public comment on December 30, 2023, allowing stakeholders 60 days to provide feedback. These heightened standards currently encompass board oversight, risk management, internal controls, and accounting standards. The OCC argues that only the largest banks should be held to these rigorous requirements, as their size and complexity present unique challenges to financial stability.
In its proposal, the agency emphasized that while the newly excluded institutions would no longer face the strictest regulations, they are still expected to uphold robust risk management practices. “This would also allow excluded institutions’ employees to spend more time on executing the firm’s strategy,” the proposal noted. The OCC further stated that the new framework would not permit firms to neglect their compliance responsibilities or operate in an unsafe manner.
The impact of this deregulation is anticipated to result in substantial cost savings for the banking sector. The OCC estimates that the proposed changes could save banks between $54 million and $123 million collectively, largely due to reduced staffing requirements. The agency’s preliminary analysis suggests a potential 10 percent reduction in staff, assuming that the behavior of the three largest banks remains unchanged.
As the OCC shifts away from the regulatory landscape established after the 2008 financial crisis, it reflects a broader trend within the current administration. Under the leadership of Bessent, efforts are underway to dismantle many regulations deemed overly restrictive. In a speech delivered to the Economic Club of New York, Bessent highlighted the need for regulatory bodies, including the Federal Deposit Insurance Corporation (FDIC), to coordinate their actions and adopt a unified approach to deregulation.
Comptroller of the Currency Jonathan Gould has interpreted Bessent’s signals as a call to transition from a post-crisis mindset of stringent policing to a more focused, business-oriented regulatory framework. Gould has previously stated that regulations enacted in response to the 2008 crisis “narrowed the scope of banking relevance,” inadvertently driving financial activity outside traditional banking systems.
In light of these developments, the OCC aims to foster an environment that encourages innovation within the banking sector, even considering the role of qualified fintech companies in expanding the industry’s reach. Gould has advocated for ensuring that these technology-driven firms are also subjected to appropriate oversight, aiming to balance innovation with adequate risk management.
As the proposal unfolds, it remains to be seen how stakeholders will respond and whether this shift will reshape the financial landscape for both large and mid-sized banks in the coming years.
