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In testimony before the Senate Banking Committee on March 19th, Fed Governor Daniel Tarullo discussed the “Application of Enhanced Prudential Standards to Bank Holding Companies.” The bulk of his testimony elucidates the Fed’s application of a tiered approach in its differentiation of the regulatory application of the Dodd-Frank Act to very large banks and bank holding companies.  However, in discussing two particularly burdensome provisions of the DFA to smaller institutions (i.e., the Volcker amendment and the incentive compensation provisions) he said the following:

Experience to date, however, suggests that there are some statutory thresholds that might bear reexamination. One pertains to the applicability of some Dodd-Frank Act provisions to community banks. For example, the Volcker rule and the incentive compensation requirements of section 956 of the Dodd-Frank Act are directed at concerns generally present only with larger institutions, but the Volcker rule by its terms applies to all banking organizations, and the incentive compensation provisions apply by their terms to all banking organizations with $1 billion or more in assets. The banking agencies have done their best to tailor the application of these rules to smaller banks and, indeed, to make clear the limited extent to which they should affect those banks. However, some compliance effort on these rules is still needed at community banks. Raising the asset threshold for these two requirements to $10 billion would eliminate this compliance burden, the cost of which is probably not worth whatever incremental prudential benefits might be gained at these small banks.”

This statement by the Fed may just be what is needed to prod Congress to make some badly needed legislative changes to the DFA and provide some meaningful regulatory relieve to community banks. You may read the full text of Governor Tarullo’s testimony here.