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For release on delivery
10:00 a.m. EDT (9:00 a.m. local time)
October 19, 2015

Identifying Opportunities for Reducing Regulatory Burdens on Community Banks

Remarks by
Lael Brainard
Board of Governors of the Federal Reserve System
The Economic Growth and Regulatory Paperwork Reduction Act
Outreach Meeting
Federal Reserve Bank of Chicago

October 19, 2015

On behalf of the Federal Reserve Board, I want to thank everyone for
participating in the fifth outreach meeting held as part of the Economic Growth and
Regulatory Paperwork Reduction Act (EGRPRA) review process. I also want to thank
President Charles Evans for hosting today.
Under EGRPRA, the federal banking agencies are required to conduct a joint
review of our regulations every 10 years. At the Federal Reserve, we view the current
review as a timely opportunity to step back and look for ways to reduce regulatory
burden, particularly for smaller or less complex banks that pose less risk to the system.
Our ultimate goal is to identify outdated, unnecessary, or unduly burdensome regulations
and to take action to address those burdens.
I was pleased to participate, along with colleagues from the other banking
agencies, in the launch meeting held last November in Los Angeles. Since that time, staff
across the Federal Reserve System, including here in Chicago, have been hard at work
evaluating comments and identifying actions that will meaningfully reduce burden. In
some cases, where we have authority and the benefit is straightforward, we have taken
action. In other cases, which may require interagency agreement and changes to rules,
the process will take longer. In still other cases, we may need to look to Congress to take
action. I want to spend the rest of my time this morning highlighting those areas that
hold the greatest promise to reduce undue regulatory burden, especially for our
community banks. 1
Regulatory Reports


These remarks represent my own views, which do not necessarily represent those of the Federal Reserve

-2 We have heard the request to achieve a meaningful reduction in the burden
associated with regulatory reporting, and we are taking action. In early September, the
Federal Financial Institutions Examination Council (FFIEC) detailed steps regulators are
taking to streamline and simplify regulatory reporting requirements for community banks
and reduce their reporting burden. As an initial step to streamline some reporting
requirements, the federal banking agencies, under the auspices of the FFIEC, are seeking
comment on proposals to, in part, eliminate or revise several Call Report data items.
Additionally, the federal banking agencies are evaluating the feasibility and merits of
creating a streamlined version of the quarterly Call Report for community banking
The Federal Reserve Board is conducting a separate review of the FR series of
reports for holding companies to identify unnecessary burden. Of course, any changes to
the bank Call Report forms will likely be reflected with corresponding changes to the
Bank Holding Company FR Y-9 reports, but there are additional reports for holding
companies that are included in our broader review.
Small Bank Holding Company Policy Threshold
The Federal Reserve Board has taken action to address burden concerns from
community banks by expanding the universe of small bank holding companies covered
by the Small Bank Holding Company Policy Statement. In December 2014, following
congressional action, the Federal Reserve amended its regulation to raise the total asset
threshold for the policy statement’s applicability from $500 million to $1 billion in total
consolidated assets. As a result, more than 700 holding companies (that are not engaged
in complex activities) are now exempt from consolidated regulatory capital requirements,

-3 reducing both the cost of capital and reporting requirements for small depository
institutions. 2
Community Reinvestment Act
The Federal Reserve Board and the other federal banking agencies have received
numerous constructive comments on ways to update the implementation of the
Community Reinvestment Act (CRA) to better reflect changes in the ways banking
services are being provided and banks are interacting with their communities. A few of
the most common issues raised include those related to whether the definition of
Assessment Areas should be revised because of changes in technology that allow banks
to gather deposits and make loans far from existing branches and deposit-taking ATMs,
whether the asset thresholds that determine the examination methods for banks of
different sizes should be raised to lessen regulatory burden on smaller banks, and whether
the performance tests should be revised to give more meaningful consideration to
community development activities.
These are important issues, and we are looking at a wide range of suggestions and
options, which may mean it will take us time to distill the comments and formulate
effective policy responses in collaboration with the other banking agencies. In the
meantime, I urge you to continue providing specific suggestions to help inform our
interagency deliberations.


See Board of Governors of the Federal Reserve System, “Federal Reserve Board Issues Final Rule to
Expand Applicability of Small Bank Holding Company Policy Statement and Apply It to Certain Savings
and Loan Holding Companies,” news release, April 9, 2015, Regulatory capital requirements will
continue to apply to the depository institution subsidiaries of these companies.

-4 Bank Secrecy Act/Anti-Money Laundering
We have heard from many community bankers that they would welcome
guidance that would assist them in meeting their compliance obligations under the Bank
Secrecy Act/Anti-Money Laundering rules in more cost-effective ways. Accordingly, we
are taking a careful look at options that might reduce exam frequency for lower-risk
banks and might enable small banking institutions to share expert resources. There may
also be an opportunity to align insider abuse Suspicious Activity Report filing
requirements with other filing requirements applicable to all other known or suspected
criminal violations.
Expediting and Improving Applications
The Federal Reserve Board has received comments regarding the amount of time
it takes to process applications. Last year, we started publishing a semiannual report that
improves the transparency of the applications process by providing information on the
applications that have been approved, denied, and withdrawn and the length of time to
review applications. 3 We are currently reviewing our rules to see whether there are ways
to expedite the applications review process by delegating additional matters to the
Reserve Banks.
In addition, we have received suggestions regarding possibly broadening the
measure of the degree of competition in a banking market to include the activities of
Internet banks. 4 Doing so would reduce the market shares of other banks and the


See Board of Governors, “Federal Reserve Board releases First Semiannual Report on Banking
Applications Activity,” news release, November 24, 2015,
The Herfindahl-Hirschman Index (“HHI”) is used to measure economic concentration in a banking market
under the Department of Justice Bank Merger Competitive Review guidelines.

-5 measures of local market concentration, which in turn may help community banks in
rural areas that are engaged in acquisitions.
Appraisal Thresholds
At past EGRPRA outreach meetings, participants have raised concerns that the
requirement to obtain an appraisal on small dollar real estate loans is a significant burden,
particularly in rural areas. The prudential regulators’ rules issued under the Financial
Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) currently do not
require the use of a state-certified or state-licensed appraiser for federally related
transactions of $250,000 or less, or real estate secured business loans of $1 million or less
when the primary source of repayment is not sale proceeds or rental income from the
property. The statute allows the agencies to determine the appropriate threshold below
which an appraisal by a state-certified or state-licensed appraiser is not required if that
threshold would not represent a threat to the safety and soundness of financial
institutions. The agencies adopted these two thresholds in 1994.
Given the passage of time and changes in the condition of real estate markets, I
believe it is appropriate for the agencies to again review the current thresholds. In
particular, the agencies need to assess whether the thresholds appropriately address
collateral and credit risk in small dollar real estate loans and are reasonably balanced
against the cost and time to obtain an appraisal, particularly in rural markets where fewer
appraisers may be available. Of course, the agencies would need to consider whether any
revision to the $250,000 threshold level would provide reasonable protection for
consumers. Board staff is evaluating the appropriateness of the thresholds in the

-6 prudential appraisal regulation. We will work with other agencies in completing this
analysis. 5
Simplified Capital for Small Institutions
At previous outreach meetings, community banks have asked whether the Federal
Reserve can exempt smaller financial institutions from meeting all of the revised capital
requirements. Based on lessons from the crisis, bank capital requirements were
significantly revised to make the requirements more risk-sensitive and raise the quality
and quantity of capital. In some instances, smaller institutions have indicated that the
degree of categorization of risks, the attendant recordkeeping and systems changes, and
the increased reporting burden on their institutions are generating significantly increased
compliance costs that are not commensurate with the risk profile of the institution. For
smaller and less complex community banks, the benefit from this increased risk
sensitivity may be outweighed by the burden of increased complexity, and a
commensurate improvement in safety and soundness of the institution may be achievable
by simply holding a larger cushion of capital measured against a simpler definition of
assets. To be workable, such an approach would need to provide a robust measure of the
financial institution’s capital health and meet the objectives of the Collins amendment.
We are currently exploring possible options. 6


It is important to note that any change in the appraisal threshold will only affect federally related
transactions covered by the prudential regulators’ rules. The majority of residential mortgages would
remain subject to the appraisal requirements set by secondary market, particularly by Fannie Mae and
Freddie Mac.
See Daniel K. Tarullo, “Tailoring Community Bank Regulation and Supervision” (speech at the
Independent Community Bankers of America 2015 Washington Policy Summit, Washington, DC),

-7 Stress Tests for Regional Banks
One additional item that I would consider worthy of congressional consideration
in the EGRPRA context would be the stress tests currently performed by smaller,
regional lenders, or those above $10 billion in assets but less than $50 billion in assets. It
might be worthwhile to examine the prudential benefits--the additional insights gained by
us as supervisors as well as by the banks’ senior managers from the stress tests--against
the opportunity costs in terms of compliance measures and the allocation of management
and examination resources for both supervisors and those banks. And I look forward to
discussing this in the coming months.
In considering these issues, it is also important to underscore that we are already
tailoring our expectations for the stress tests to the lower risk profile of smaller banking
institutions, and the stress tests currently performed by these institutions should in no way
be designed to mimic the more comprehensive and extensive stress testing program for
larger and more complex institutions, particularly the Comprehensive Capital and
Analysis Review (CCAR) program.
Examination Cycle
We are also examining whether there may be scope to extend examination cycles
for community banks with lower risk profiles and in some areas have already taken
action. For example, the Federal Reserve recently revised our consumer compliance
examination frequency policy to lengthen the time frame between on-site consumer
compliance and CRA examinations for lower-risk community banks with less than $1
billion in total consolidated assets. Another item to evaluate includes potentially
increasing the number of healthy, well-managed community institutions that could

-8 qualify for an 18-month examination cycle by raising the threshold from its current $500
million level. In addition to reducing the examination burden on many community
banks, this would also allow the federal banking agencies to better allocate resources to
those banks that pose more significant supervisory concerns.
Volcker Rule
Finally, EGRPRA may provide a good opportunity to reevaluate whether
community banks should be subject to the Volcker rule. Exempting banks with less than
$10 billion in assets from its requirements would significantly help reduce burden on
smaller institutions. 7
The list that I have laid out here is meant to be suggestive, not comprehensive. I
look forward to hearing your views on these issues as well as any additional suggestions
you believe to be worthy of consideration. Each of the agencies will be using the
information gathered at this outreach meeting and our other outreach efforts to support
the review process, so we can reduce burden where possible, particularly for community
banks. I encourage everybody to speak frankly and to be as specific as possible.
Thank you again for coming.


See Tarullo, “Tailoring Community Bank Regulation and Supervision”; and Jerome H. Powell,
“Regulation and Supervision of Community Banks” (speech at the Annual Community Bankers
Conference sponsored by the Federal Reserve Bank of New York),