OCC moves to limit toughest standards to megabanks

Key insight: The OCC is proposing relaxing its toughest category of supervision, limiting the heightened prudential standards to only the very largest firms.

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Supporting data: The rule would raise the asset threshold from $50 billion to $700 billion, cutting the number of covered banks from 38 to eight.

Forward look: The move makes good on Treasury Secretary Scott Bessent’s push for regulators to “sing in unison” on deregulation and reflects Comptroller Jonathan Gould’s focus on addressing only the most glaring banking risks.

The Office of the Comptroller of the Currency has proposed a rule to exempt all but the largest national banks from the strongest post-financial crisis regulatory treatment.

The rule, issued for comment last week, would raise the asset threshold for banks subject to heightened standards from $50 billion to $700 billion. While the standards, which cover board oversight, risk management, internal controls and accounting standards, currently apply to 38 banks, just eight banks would remain subject to them under the proposed change.

The OCC says the standards have become excessively burdensome for midsize institutions and are only justified for the largest, most complex banks that pose systemic risk. The agency says it expects firms that would be newly excluded under its proposal to design and implement bespoke risk governance frameworks voluntarily.

“This would also allow Excluded Institutions’ employees to spend more time on executing the firm’s strategy,” the agency proposal stated. “The OCC emphasizes that this proposal would not authorize Excluded Institutions to neglect their risk management or compliance responsibilities, or to operate their firms in an unsafe or unsound manner.”

The OCC estimates the move will save banks tens of millions of dollars collectively.

“The OCC’s analysis indicates aggregate cost savings from both expected staff reductions and time savings ranging from $54 million to $123 million, using an assumption of a 10 percent staff reduction,” the agency wrote. “The OCC preliminarily concludes that the most plausible outcome is a 10 percent staff reduction with the assumption that the three largest banks not subject to the Guidelines would not change their behavior. In this scenario, the potential cost savings from both expected staff reductions and time savings would amount to approximately $67 million.”

Comments on the proposal will be accepted for 60 days after publication in the Federal Register, which is scheduled for Dec. 30.

The shift comes as the agency is moving drastically away from the post-2008 paradigm of greater risk aversion and prudence, while also taking an active role in promoting new technology and innovation at banks. The rule that established heightened standards for large banks was adopted in 2014.

Treasury Secretary Scott Bessent — the administration’s most influential financial policy voice — has repeatedly made the case for a unified deregulatory front. In a March speech at the Economic Club of New York, Bessent said he was coordinating regulatory actions across the banking agencies, including the Federal Deposit Insurance Corp., to ensure they are “singing in unison from the same song sheet.”

Bessent believes agencies such as the OCC and the FDIC need to turn the page on Dodd-Frank Act regulations implemented after the 2008 financial crisis. Under his stewardship, the FDIC has unwound and pared back dozens of bank regulations — many crafted in the wake of the 2008 crisis — that are seen as onerous and, in Bessent’s view, partially responsible for banks’ decreasing market share in financial activities traditionally handled by banks.

Comptroller of the Currency Jonathan Gould has interpreted the signal from Bessent in his own way, recasting bank supervision away from post-crisis perimeter policing and toward a narrower, business-centric model that is realizing the Trump administration’s goal of deregulation.

Last month, Gould said regulations enacted by Congress and the banking agencies in response to the 2008 crisis “narrowed the scope of banking relevance,” driving activity out of the system. Gould has also expressed his view that it’s important  to consider how qualified fintechs could help expand the industry’s reach, while also subjecting them to full oversight.