The U.S. Federal Reserve is working on a plan to raise the asset thresholds that determine when large banks face tougher regulatory requirements. The proposed changes would account for years of inflation and economic growth, potentially giving regional and midsize lenders more room to expand before facing additional stress tests, capital requirements, liquidity rules and reporting obligations.
Updating Rules Set Years Ago
Under current rules, banks begin facing stricter requirements once they reach $100 billion in assets, with additional requirements applying at $250 billion and $700 billion. Those thresholds were established under the current framework in 2019, and banking industry representatives argue that they have not kept pace with the growth of the U.S. economy.
Crossing the $100 billion level can require banks to make major investments in compliance employees, risk management systems, stress-testing capabilities and regulatory reporting. Banks say those additional expenses can reach tens of millions of dollars each year.
The Fed is now considering increasing the highest threshold to roughly $1 trillion while moving the threshold for some additional requirements from $100 billion to approximately $150 billion. If the thresholds were specifically indexed using nominal gross domestic product, the highest level could rise to around $960 billion.
Regional Banks Could Gain More Room to Grow
Several major regional banks could be affected by the proposed changes. U.S. Bancorp, Capital One, PNC Financial and Truist are among the lenders closest to the existing $700 billion threshold. Raising that level could allow them to continue growing without immediately becoming subject to some of the Fed’s toughest additional requirements.
Western Alliance, Zions and other lenders could similarly move beyond $100 billion without facing all of the requirements currently associated with that category. Some banks already holding between $100 billion and $150 billion in assets could potentially see certain requirements removed.
A U.S. Bancorp spokesperson said, “The US economy has grown significantly over the past seven years, and it makes sense to have rules for all banks that will help consumers and small businesses through increased bank lending capacity and more competition.”
The Federal Reserve declined to comment on the reported plan. Fed Vice Chair for Supervision Michelle Bowman said earlier this year that the central bank would consider reindexing the thresholds and suggested nominal GDP as a possible measure.
A Possible Boost for Bank Mergers
Changing the thresholds could also influence mergers and acquisitions among midsize and regional banks. Some lenders have reportedly been reluctant to pursue acquisitions because a deal could push them over a regulatory threshold and bring significantly higher compliance costs.
Truist analysts said, “Revised thresholds can reduce downsides of growth and change relative costs/benefits of acquisitions.”
Banks with between $50 billion and $700 billion in assets announced only 33 bank and thrift acquisitions during the past decade, according to S&P Global Market Intelligence data cited in the report. Seven such transactions were announced last year.
James Stevens, a partner at Troutman Pepper Locke, said, “We would expect this to unlock M&A activity among mid-cap and regional banks that have been in a holding pattern.”
He added that bank boards could evaluate potential transactions “rather than on the regulatory math.”
Debate Over the Right Level of Oversight
The potential changes come amid a broader effort by the Trump administration and federal banking regulators to revise financial oversight. Supporters of lighter regulation argue that excessive compliance requirements can restrict lending, raise costs and discourage banks from growing.
Critics take a different view, warning that reducing regulatory requirements or encouraging further bank consolidation could increase financial risks while reducing competition and services for consumers. Democrats have also argued that Congress already eased parts of the regulatory framework in 2018 and that asset thresholds provide regulators with a relatively straightforward way to determine when tougher requirements should apply.
Some requirements cannot be changed by the Federal Reserve alone. Federal law mandates certain stress tests for banks in the $100 billion category and enhanced prudential standards for institutions above $250 billion, meaning congressional action would be required to change those provisions. The Fed, however, has discretion over several additional capital planning, liquidity and reporting requirements.
A Potential Shift in US Banking Regulation
If the Federal Reserve moves forward with the proposal later this year, higher thresholds could reshape how regional and midsize banks approach growth, acquisitions and regulatory compliance. Reindexing the limits would give some institutions more room to expand before triggering tougher oversight, while also renewing debate over how regulators should balance economic growth and competition with safeguards designed to protect the financial system.
