What if the U.S. government took the attitude that complexity — and not merely size — is what makes a bank dangerous in times of crisis? This subtle concept lies at the heart of a rare piece of legislation on financial services that’s won bipartisan support, and could relax the fraught politics of regulatory relief for smaller banks in the next Congress.
For much of the past 6 years, Washington has cleaved the banking world into two, not-entirely-sensible halves: community banks and Wall Street. Congress and administrative agencies have also fostered this dichotomy by the definitions they’ve embraced in law and regulation.
Are you a bank with a balance sheet under $10 billion in assets? You’re a community bank. Over $50 billion? You could be the cause of the next financial crisis. Over $250 billion? You’re a behemoth, subject to all sorts of special rules.
“Our system places too many institutions in regulatory boxes that are inappropriate given their risk profiles and business models,” said Rep. Blaine Luetkemeyer, a Missouri Republican who has sponsored legislation that would introduce a new regulatory paradigm.
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