Fed's Tarullo wants to cut red tape for small banks

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[April 30, 2015] By Douwe Miedema

WASHINGTON (Reuters) - Rules for small U.S. banks should be less strict and less cumbersome than those for their larger and more risky peers, the Federal Reserve's top regulator said on Thursday.

Small banks with $10 billion or less in assets could for instance be allowed to opt into simpler capital rules, Fed Governor Daniel Tarullo said in a speech to bankers.

In return, they could be subject to a higher minimum ratio for shareholder equity, which sets a cap on how much money they can borrow to fund their business, he said.

"The tradeoff of higher requirements for a simpler approach may be promising," Tarullo said.

Community banks are at the heart of a debate between lawmakers and regulators about whether a raft of new rules introduced after the 2007-09 crisis isn't going too far for such small banks, which are often in rural areas.

Sen. Richard Shelby, the Republican head of the powerful Senate Banking Committee, has said he wants to ease the rules for community banks, though the contents of a bill he is planning to launch soon are still unknown.

Some of the provisions of the 2010 Dodd-Frank act, which aims to avoid a repeat of the worst financial crisis since the 1930s, could be scrapped for smaller banks altogether, said Tarullo, one of the most powerful U.S. regulators.

The Volcker rule, which bans banks from betting on markets with their own money, and provisions to ban bonuses that encourage bankers to take undue risks were two examples where the regulatory burden could be cut, he said.

Another idea was a simpler way for smaller banks to determine which loans in their portfolio were so-called high-volatility commercial real estate loans, a risky type of lending that has caused problems in the past.

Tarullo said he would discuss these ideas with banks as part of a decennial review to cut red tape under the Economic Growth and Regulatory Paperwork Reduction Act (EGRPRA).

(Reporting by Douwe Miedema; editing by Andrew Hay)

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