Regulation Based on Risk

When the Dodd-Frank Act was enacted, it imposed significant systemic risk regulations on regional banks based on an arbitrary asset number of $50 billion, rather than taking into account a bank’s risk profile or business model. Since then, regulators at the Financial Stability Board and the Basel Committee for Bank Supervision have developed a more precise test to measure systemic risk by examining five factors: size, interconnectedness, complexity, global activity, and dominance in certain customer services, also known as substitutability.

Regional banks stand for a tailored, balanced regulatory structure that acknowledges that risk is not measured by asset size alone, but instead accounts for the diversity and resilience of different banking sectors.

America’s regional banks are traditional lending institutions that help local communities thrive and prosper.

With deep ties to community leaders and employers, we use customer deposits to fund lending to local consumers and small- and medium-sized businesses. We have strong ties to the communities we serve and deliver economic development to regional economies. As a consequence of serving the heart of community economic growth, we welcome appropriate government regulation, based on risk and business model, to assure our safety and soundness.

As traditional lending institutions, regional banks did not cause the systemic financial crisis of 2008. Unlike the firms at the center of the crisis, regional banks do not have the kind of risk associated with complex networks of interconnected transactions. Regional banks are not saddled with large derivatives contracts or similar dangerous assets. Trading assets are less than one percent of our total assets, as are broker dealer assets. Regional banks have less than one percent of the banking industry’s total credit default swap exposure. Regional banks rely on core deposits to fund their operations. Core deposits are equal to 72 percent of assets.

Our risk profile makes regional banks the opposite of too big to fail firms.

And although our risk profile makes regional banks the opposite of too big to fail firms, we must now comply with costly new regulatory requirements imposed by the Dodd-Frank Act and the Basel regime that address the activities of complex, interconnected banks.

Using the Basel test, recent studies, including one by the Treasury Department’s Office of Financial Research, have shown that regional banks do not exhibit the systemic risk factors attributed to the large Wall Street banks. Yet the unwarranted regulatory burden imposed on them reduces the capital available to drive local economies, putting a drag on jobs and wages.

Regional banks stand for a tailored, balanced regulatory structure that acknowledges that risk is not measured by asset size alone, but instead accounts for the diversity and resilience of different banking sectors.