Over the Line: Asset Thresholds in Bank Regulation

Over the Line: Asset Thresholds in Bank Regulation

Over the Line: Asset Thresholds in Bank
May 3, 2021
Regulation
Marc Labonte
As of December 31, 2020, there were over 5,000 banks in the United States. While certain kinds
Specialist in
of banks may be similar to each other, the industry as a whole is made of up institutions that
Macroeconomic Policy
differ in a variety of ways, in some ways quite drastically. How concentrated a bank is in loan

making, how concentrated that lending is in specific loan types or geographic markets, how many
David W. Perkins
other financial services the bank provides, and how much risk it is willing to take on are just a
Specialist in
few characteristics across which banks may differ significantly. Perhaps the most striking
Macroeconomic Policy
disparity across the industry is bank size, typically measured as the value of the assets a bank

owns.

Nearly a fifth of banks hold less than $100 million in assets, and the industry median is about
$300 million. Meanwhile, the largest U.S. bank has over $3 trillion in assets, with three others over or near $2 trillion.
Relative to large banks, small banks also tend to focus more on traditional commercial bank activities such as loan making
and deposit taking; be less or not at all involved in other activities such as securities dealing and derivatives; have fewer
resources to dedicate to regulatory compliance; and individually pose less or no risk to the stability of the financial syste m.
For these reasons, there is general consensus that bank regulations should be tailored to account for bank differences,
although questions over how much regulation should be tightened or relaxed for different groups of banks and to exactly
which banks the changes should apply are matters of perennial debate.
Tailoring bank regulation in general produces certain benefits (e.g., achieving the goals of a regulation at less cost ; not
subjecting a group of banks to needless, costly regulation; freeing small bank resources for lending) but at certain costs (e.g.,
potential increased risk of failure for banks that qualify for relatively lax regulation, creating the opportunity for regulatory
arbitrage). Furthermore, the reliance on asset thresholds has strengths and weaknesses. As a simple criterion, it makes
regulatory treatment objective and transparent and minimizes opportunity for regulatory arbitrage. However, when
application of a rule relies on a single, binary criterion, it can create distortionary “cliff” effects.
In practice, policymakers tailor regulation on an ad hoc, law-by-law, and regulation-by-regulation basis. Most, but not all,
thresholds use asset size, sometimes in combination with other metrics. Many of these thresholds were introduced or raised
by the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (P.L. 111-203) or the 2018 Economic Growth,
Regulatory Relief, and Consumer Protection Act (P.L. 115-174). The result is a regulatory framework in which banks
become subject to differing treatment under numerous regulations over a range of th resholds. For example, banks ’ corporate
governance and auditing requirements become more strict at $500 million in assets and then become stricter at $1 billion;
banks below $3 billion can qualify for less frequent examination and take on more debt to merge; banks below $5 billion file
simpler quarterly reports; banks below $10 billion are not subject to proprietary trading restrictions (the Volcker Rule),
limitations on debit card interchange fees, or primary consumer compliance supervision by the Consumer Financial
Protection Bureau. The largest banks are subject to a regime of increasingly stringent enhanced prudential regulations to
mitigate the systemic risk they pose.
Recent trends and developments have implications for thresholds that may draw policymaker attention. Assets across the
industry rose quickly and perhaps permanently due to the effects of the COVID-19 pandemic and policy responses to it. As a
result of industry consolidation over the past 35 years, the number of small banks and their share of industry assets has
declined, while the number of large banks and their share of industry assets have grown, meaning that low thresholds now
apply to an increasingly small portion—and high thresholds an increasingly large portion—of the industry. Finally, inflation
means that the mostly static thresholds, which are not adjusted for inflation, are getting smaller over time in real terms.
Congressional Research Service

link to page 5 link to page 6 link to page 6 link to page 6 link to page 7 link to page 8 link to page 9 link to page 9 link to page 9 link to page 9 link to page 10 link to page 10 link to page 11 link to page 11 link to page 12 link to page 13 link to page 14 link to page 15 link to page 16 link to page 16 link to page 17 link to page 18 link to page 18 link to page 20 link to page 20 link to page 23 link to page 23 link to page 24 link to page 25 link to page 25 link to page 26 link to page 27 link to page 27 link to page 27 link to page 28 link to page 29 link to page 29 link to page 30 link to page 12 link to page 15 link to page 22 link to page 23 Over the Line: Asset Thresholds in Bank Regulation

Contents
Introduction ................................................................................................................... 1
Overview ....................................................................................................................... 2
Unofficial Categories of Banks .................................................................................... 2
Community Banks................................................................................................ 2
Wall Street Banks ................................................................................................. 3
Banks Somewhere in Between................................................................................ 4
Rationale for Tailoring ............................................................................................... 5
Systemic Risk ...................................................................................................... 5
Costs of Compliance ............................................................................................. 5
Critical Mass ....................................................................................................... 5
Promoting Community Banks ................................................................................ 6
Costs of Tailoring ...................................................................................................... 6
Strengths of Asset-Size Based Tailoring ........................................................................ 7
Weaknesses of Asset-Size Based Tailoring..................................................................... 7
Selected Thresholds and Classifications.............................................................................. 8
History..................................................................................................................... 9
Current Asset-Size Data............................................................................................ 10
Thresholds Below $500 Million ................................................................................. 11
$500 Million ........................................................................................................... 12
$1 Billion ............................................................................................................... 12
$3 Billion ............................................................................................................... 13
$5 Billion ............................................................................................................... 14
$10 Billion ............................................................................................................. 14
$20 Billion ............................................................................................................. 16
Enhanced Prudential Regulation ................................................................................ 16
$50 Billion ........................................................................................................ 19
Category IV ($100-$250 Billion) .......................................................................... 19
Category III ($250-$700 Billion) .......................................................................... 20
Category II ($700 Billion) ................................................................................... 21
Category I: Global Systemical y Important Banks (G-SIBs) ...................................... 21
Supervisory Differences Based on Size............................................................................. 22
Issues for Congress ....................................................................................................... 23
Regulatory Implications of Recent Asset Growth .......................................................... 23
Challenges Facing Banks Due to Recent Asset Growth ............................................ 23
Policy Responses Taken Under Existing Regulator Authorities .................................. 24
Potential Responses Needing Additional Regulator Authority from Congress............... 25
Industry Consolidation Trends ................................................................................... 25
The Effects of Inflation on Thresholds Over Time......................................................... 26

Tables
Table 1. Size-Based Exemptions and Tailoring in Bank Regulation ......................................... 8
Table 2. Number of Banks By Asset Size* ........................................................................ 11
Table 3. EPR Requirements ............................................................................................ 18
Table 4. Number of Holding Companies Subject to EPR ..................................................... 19
Congressional Research Service

link to page 31 Over the Line: Asset Thresholds in Bank Regulation

Contacts
Author Information ....................................................................................................... 27

Congressional Research Service

Over the Line: Asset Thresholds in Bank Regulation

Introduction
Banking is one of the most heavily regulated industries in the United States due to its key role in
the economy, its inherent risks, and the potential taxpayer exposures it creates. Al banks are
subject to numerous regulations regardless of size and other characteristics.1 However, banks
differ from each other across numerous aspects of their business models, including balance sheet
size, breadth of products and services offered, funding sources, and risk appetite.2 Policymakers
and experts general y agree that bank regulation should be applied differently to different groups
of banks, or “tailored,” to account for these differences between institutions.3 This is one way that
policymakers attempt to reduce regulatory burden on smal er banks.4
As a result, certain regulations apply to banks based on one or more criteria. Often, but not
always, the criteria involve asset size. Asset thresholds are a simple metric in the sense that they
are transparent, objective, and easy to understand. For example, banks are subject to or exempt
from certain regulations based on whether the total value of the assets a bank owns fal s above or
below a certain threshold, such as $500 mil ion, $1 bil ion, $10 bil ion, or $250 bil ion in total
assets.
Policymakers have tailored bank regulation on an ad hoc, statute-by-statute, and regulation-by-
regulation basis general y to maximize benefits relative to costs of a particular regulation. Over
time, these regulations have accumulated into a regulatory framework in which many regulations
with varying goals and addressing various risks come into effect at numerous asset-size
thresholds ranging from as smal as $48 mil ion to as large as $700 bil ion. Whether these
thresholds are set at appropriate levels is often a policy consideration for Congress. In addition,
some question whether tailoring based predominantly on asset size is the best approach or if other
criteria should play a larger role. Meanwhile, the effect on bank balance sheets from the COVID-
19 pandemic, the long-term trend of bank industry consolidation, and inflation al have
implications in the asset-threshold-based framework.
This report provides an overview of asset thresholds that determine the regulatory treatment of
banks. It begins with a background on the rationale and costs of bank regulation tailoring
general y and then examines the strengths and weaknesses of a system that uses asset thresholds
as the predominant tailoring criteria. It then describes a number of specific thresholds and the
changes in regulatory treatment that occur when banks cross them. The report concludes with an
outlook of how market forces and trends are affecting bank asset size.

1 Julie Stackhouse, Why Are Banks Regulated?, Federal Reserve Bank of St. Louis, January 31, 2017,
https://www.stlouisfed.org/on-the-economy/2017/january/why-federal-reserve-regulate-banks.
2 In general, this report uses the term bank to refer to insured depository institutions (IDIs)—that is, institutions insured
by the Federal Deposit Insurance Corporation (FDIC)—or organizations that own one or more IDIs, including bank
holding companies (BHCs), financial holding companies, intermediate holding companies, and savings and loan
holding companies. Some asset thresholds apply to IDIs, whereas others apply to BHCs or othe r holding companies.
3 Former Federal Reserve Governor Daniel K. T arullo, “A T iered Approach to Regulation and Supervision of
Community Banks,” remarks at the Community Bankers Symposium, November 7, 2014, pp. 1 -2,
https://www.federalreserve.gov/newsevents/speech/tarullo20141107a.htm.
4 For other examples, see CRS In Focus IF10162, Introduction to Financial Services: “Regulatory Relief”, by Marc
Labonte.
Congressional Research Service
1

Over the Line: Asset Thresholds in Bank Regulation

Overview
Bank regulation aims to achieve certain potential benefits (e.g., better-managed risks, increased
consumer protection, greater systemic stability) that justify potential costs of the regulation (e.g.,
reduced credit availability for certain consumers and businesses, slower economic growth over
some period of time).5 The size of the realized benefits and costs of a regulation for any
individual bank or group of banks are likely to depend on the characteristics of that bank or
group. Thus, appropriately tailoring regulation to banks of different types is an important
component of designing effective and efficient regulation. One possible criterion on which to
group banks, and the one primarily used in the existing bank regulatory framework, is asset size.
This section begins by providing conceptual descriptions of popularly understood bank types and
then examines the rationales and costs of tailoring regulation and the strengths and weaknesses of
using asset size as the predominant criterion.
Unofficial Categories of Banks
Although they are not formal or legal concepts, describing conceptual bank archetypes can
provide context for the different characteristics among bank size, business models, activities, and
risks.
Community Banks
The terms community bank and Main Street bank typical y refer to a bank that uses a traditional,
simple deposit-taking and loan-making business model to meet the credit needs of a certain
community. Size-based regulatory exemptions are often rationalized as a means to provide
regulatory relief to community banks.
No consensus exists about what the specific size threshold for defining a community bank should
be. In addition, many have observed that most smal banks are general y different from large
banks in a variety of ways besides asset size. Although community banks are typical y smal in
terms of asset size, conceptual y size does not necessarily have to be a determining factor. For
example, the Federal Deposit Insurance Corporation (FDIC), for research purposes, identifies
community banks through a number of criteria, including the size of certain balance sheet items
relative to others and geographic considerations, although there is also an asset-size component.6
Any bank with assets above an inflation-adjusted threshold ($1.74 bil ion as of December 2020)
must meet certain criteria—such as having a high concentration of loans or deposits or having a
smal geographic footprint—to be defined as a community bank by the FDIC. Also, a bank below
the threshold is not a community bank if it has a certain specialty concentration.7 Under this
definition, 284 banks with more than $1.74 bil ion of assets—including one with almost $23

5 T o what degree current financial regulation appropriately balances these considerations is also a contentious issue that
is examined in this report. For more in-depth analysis on this topic, see CRS Report R44869, Financial Regulatory
Relief: Approaches for Congress, Regulators, and the Adm inistration , coordinated by Marc Labonte.
6 For example, the Federal Reserve sets the threshold at $10 billion, and the Office o f the Comptroller of the Currency
(OCC) sets it at $10 billion. See Board of Governors of the Federal Reserve System, Com m unity Banking,
http://www.federalreserve.gov/bankinforeg/topics/community_banking.htm; and OCC, Com ptroller’s Handbook,
Exam ination Process; Com m unity Bank Supervision , September 2019, p. 1, https://www.occ.gov/publications-and-
resources/publications/comptrollers-handbook/files/community-bank-supervision/index-community-bank-
supervision.html.
7 FDIC, FDIC Community Banking Study, December 2020, p. A-1, https://www.fdic.gov/resources/community-
banking/report/2020/2020-cbi-study-full.pdf.
Congressional Research Service
2

Over the Line: Asset Thresholds in Bank Regulation

bil ion in assets and nine others with more than $10 bil ion in assets—were classified as
community banks. Meanwhile, 52 banks with less than $1.74 bil ion in assets—including 41 with
less than $500 mil ion—were not classified as community banks.8
Community banks are likely to be more concentrated in core commercial bank businesses of
making loans and taking deposits and less involved in other activities such as securities trading or
holding derivatives. Community banks also tend to operate within a smal er geographic area.
These banks are general y more likely to practice relationship lending wherein loan officers and
other bank employees have a longer-standing and perhaps more personal relationship with the
local consumers and businesses.9 Due in part to these characteristics, proponents of community
banks assert that these banks are particularly important credit sources to local communities and
otherwise underserved groups. Final y, compared to large banks, smal banks are likely to have
fewer employees and fewer resources to dedicate to regulatory compliance and are less likely
individual y to pose a systemic risk to the broader financial system.10 For more information on the
regulation of smal banks, see CRS Report R43999, An Analysis of the Regulatory Burden on
Small Banks, by Marc Labonte.
Although Congress frequently justifies size-based thresholds in terms of reducing regulatory
burden on community banks, existing thresholds often use a simple size-based definition and
typical y do not incorporate more complex or sophisticated criteria used in “community bank”
definitions, such as the one provided by the FDIC. However, more sophisticated thresholds are
also used. For example, while some of the provisions in the 2018 Economic Growth, Regulatory
Relief, and Consumer Protection Act (P.L. 115-174), designed to provide community bank
regulatory relief, use size-only criteria, others use alternative qualifying criteria—such as meeting
certain capital standards and limitations on trading assets and liabilities—or explicitly grant
regulators the authority to use other criteria when implementing a provision.11 The 2018 law’s
inclusion of criteria other than asset thresholds and discretionary regulator authority may point to
the use of more nuanced community bank qualifying criteria by Congress in coming years. For
more information on P.L. 115-174, see CRS Report R45073, Economic Growth, Regulatory
Relief, and Consumer Protection Act (P.L. 115-174) and Selected Policy Issues, coordinated by
David W. Perkins.
Wall Street Banks
Wall Street bank is an informal term for a very large, very complex bank that is involved in many
business lines outside of what is viewed as the traditional commercial bank activities of making
loans and taking deposits. Such a bank could have hundreds of bil ions or tril ions of dollars’
worth of assets, and its corporate structure could involve hundreds or thousands of separate
subsidiaries under a parent bank holding company (BHC).12 Although at least one of these
subsidiaries must be a chartered bank, many others could be nonbanks, such as broker-dealers,

8 FDIC, FDIC Community Banking Study Reference Data, as of December 31, 2020, https://www.fdic.gov/resources/
community-banking/cbi-data.html.
9 FDIC, FDIC Community Banking Study, December 2012, https://www.fdic.gov/regulations/resources/cbi/report/cbi-
full.pdf.
10 Drew Dahl, Andrew Meyer, and Michelle Neely, “Scale Matters: Community Banks and Compliance Costs,” Federal
Reserve Bank of St. Louis, The Regional Econom ist, July 2016, https://www.stlouisfed.org/~/media/Publications/
Regional-Economist/2016/July/scale_matters.pdf.
11 For example, P.L. 115-174, §§201-203.
12 Small banks are also often owned by BHCs. However, in these cases a single insured depository is often the only
subsidiary the BHC holds.
Congressional Research Service
3

link to page 20 Over the Line: Asset Thresholds in Bank Regulation

asset managers, and insurance brokers or companies. Wal Street banks may be international y
active and have a global presence.13
The term Wall Street bank comes from the prominent role many of these institutions play in
underwriting and trading securities, activities that commonly take place on Wal Street in New
York City. However, an institution of the aforementioned size and complexity may not necessarily
be headquartered or even active on the actual Wal Street. Further, the largest banks vary
significantly based on the extent that their activities and assets are focused on the traditional
banking activities of lending and deposit taking as opposed to more complex activities or
nonbank activities.
Too Big to Fail (TBTF) bank is another term to characterize a large, complex financial institution
based on the (unobservable ex ante) possibility that the government wil consider financial
intervention when the bank becomes distressed. A bank is said to be TBTF when industry
observers and market participants judge that its failure would cause such serious disruptions to
the financial system that the resulting economic and social outcomes would be unacceptable to
the government. To avoid these outcomes, the government would feel compel ed to save the
institution from failure, perhaps by directly giving it funding. Characteristics that could make an
institution so important to the functioning of the financial system include its size,
interconnectedness, complexity, or central role in a certain market or sector. Although a bank that
is not among the very largest could stil be TBTF for these reasons, no smal or mid-sized bank is
viewed as meeting this description. The belief among market participants that the government
wil protect a certain bank or groups of banks could lead to moral hazard, wherein bank
management takes on excessive risks, and equity and debt investors do not adequately assess or
monitor risk because they al feel protected from potential losses, increasing systemic risk and
unfair funding advantages. In addition, government “bailouts” expose taxpayers to potential
losses. Whether the policy reforms after the financial crisis (described in the section below
entitled “Enhanced Prudential Regulation”) effectively addressed these problems is a matter of
debate. For more information on the TBTF issues, see CRS Report R42150, Systemically
Important or “Too Big to Fail” Financial Institutions, by Marc Labonte.
Banks Somewhere in Betw een
The terms regional bank and mid-size bank general y refer to banks that do not fit neatly into a
“very large, complex, and systemical y important” or “smal and simple” dichotomy. The set of
banks to which these terms refer can vary. Often, the terms describe a bank that has a traditional,
simple business model that focuses on taking deposits and making loans but has a large amount of
assets and services in a certain region of the country.14 Other times, the terms mean a bank that is
significantly larger and more complex than the thousands of community banks, but nevertheless
its failure would not pose a risk to systemic stability.15 In either case, the goal is often to describe
banks that are in some way different than smal banks servicing communities but are not of a
scale such that the material distress at a single bank would destabilize the entire financial system.
There is considerable disagreement about where to draw the lines among community banks,
regional banks, and large banks.

13 Dafna Avraham, Patricia Selvaggi, and James Vickery, “A Structural View of U.S. Bank Holding Companies,”
Federal Reserve Bank of New York Econom ic Policy Review, July 2012, pp. 65-68, https://www.newyorkfed.org/
medialibrary/media/research/epr/12v18n2/1207avra.pdf.
14 Bankrate Glossary, “What Is a Regional Bank,” https://www.bankrate.com/glossary/r/regional-bank/.
15 Robert Pozen, “T he Heavy Burden of Being Labelled Systemically Important,” Financial Times, March 20, 2016,
https://www.brookings.edu/opinions/the-heavy-burden-of-being-labelled-systemically-important/.
Congressional Research Service
4

link to page 20 link to page 20 Over the Line: Asset Thresholds in Bank Regulation

Rationale for Tailoring
Systemic Risk
There are numerous potential sources of systemic risk, including activities undertaken by smal
banks. For example, systemic risk concerns related to bank runs underlie the economic rationale
for the creation of the Federal Reserve (to act as a lender of last resort) and the FDIC (to provide
deposit insurance). Nevertheless, given the role of large banks in the 2007-2009 financial crisis,
policymakers have been particularly focused on the systemic risk posed by large, complex,
interconnected banks and ensuring that they are not TBTF.16 The Dodd-Frank Act attempted to
address this problem by imposing heightened prudential regulatory standards on the largest banks
relative to smal and medium-size banks, discussed in detail in the “Enhanced Prudential
Regulation” section below.
Costs of Compliance
The costs of regulatory compliance include investment in software and information systems,
manpower, and specialized knowledge (e.g., legal expertise, accounting expertise). In absolute
terms, regulatory compliance costs are likely to rise with size, but regulatory compliance might
involve fewer resources for large banks than smal banks in proportion to overal revenues. In
particular, as regulatory complexity increases, compliance may become relatively more costly for
smal banks than for large banks.
Suppose a new regulation leads to a smal bank with a total staff of 20 having to hire a new
accountant. Proportional y, this is highly burdensome compared to a large bank that already has
whole departments of accountants on staff. From a cost-benefit perspective, if regulatory
compliance costs are subject to economies of scale, then the balance of costs and benefits of a
particular regulation wil differ depending on the size of the bank. For the same regulatory
proposal, economies of scale could potential y result in costs outweighing benefits for smal er
banks but the benefits outweighing costs for larger banks.
Critical Mass
Another potential reason for tailoring a regulation applicable to a particular activity would be few
banks within a group (based on size or some other metric) engaging in that activity. Compliance
costs incurred to address a risk that few banks in a group are exposed to are more likely to exceed
benefits. In this scenario, tailoring can be used to ensure that the regulation applies only if there is
a critical mass of banks for which it is relevant. For any given area of regulation, there might not
be a critical mass among smal banks because of differences in business model from large banks.
Or there could be no critical mass because regulation is aimed at policy issues that are perceived
to exist primarily at large banks. In either case, one could argue it would be an inefficient use of
resources for both regulators and banks to regulate an activity at al banks when few banks are
engaged in it.17

16 T arullo, “A T iered Approach to Regulation and Supervision of Community Banks.”
17 Based on this argument, using an activity-based threshold instead of an asset -based threshold would arguably be
more efficient, assuming the activity is easy to observe and measure.
Congressional Research Service
5

link to page 11 link to page 11 Over the Line: Asset Thresholds in Bank Regulation

Promoting Community Banks
Underpinning much tailoring in regulation is a general policy position that community banks
should be supported because they may be an important source of credit and other financial
services for consumers and businesses in local market segments that may be underserved by large
banks.18
Costs of Tailoring
One of the primary purposes of rigorous “safety and soundness” regulation and supervision is to
minimize bank failures. Exempting certain banks from aspects of regulation or relaxing certain
rules could make those banks more susceptible to failure. Bank failures impose a number of costs,
including to the government (so potential y the taxpayer) through exposure to losses at the
FDIC’s Deposit Insurance Fund (DIF). When a bank fails, it can eliminate a source of credit and
other financial services to the market it serves (although in practice, the FDIC resolution process
typical y involves transferring the failing bank’s branches or customers to a healthy bank).
Because the FDIC charges banks fees, cal ed assessments, to fund itself and the DIF, more
frequent failures could result in higher assessments across the whole banking industry and thus
reduce the funds available to lend in the economy. Furthermore, an increased frequency of bank
failures could undermine the public’s trust in the banking system, potential y leading to fewer
people placing deposits in the banking system (even despite the FDIC’s deposit guarantee), thus
reducing the funding available to lend.
These risks are not trivial. Historical y most bank failures have been smal banks (though that is
due in part to the fact that most banks are smal banks and does not necessarily mean that smal
banks are more susceptible to failure). For example, of 507 post-financial crisis bank failures that
occurred from 2008 through 2014, 438 had less than $1 bil ion in assets.19 In terms of systemic
stability, while it is true that a smal institution may individual y pose less systemic risk, large
numbers of smal bank failures could lead to widespread financial and economic stress. For
example, over 1,043 mostly smal institutions failed during the savings and loan crisis of the
1980s and early 1990s, a systemic event that cost taxpayers about $124 bil ion, according to one
estimate.20
Tailoring can also create market incentives to engage in regulatory arbitrage, wherein banks
structure themselves to avoid regulation or reduce compliance costs rather than basing their
decisions on business and efficiency reasons. Assuming the regulation achieves a broad policy
goal (such as consumer protection), if this occurred it could undermine the regulation’s
effectiveness and economic efficiency.21 A reduction in the undesirable activity at banks above the
threshold could be offset by an increase in those activities at banks below the threshold. The
distortionary regulatory effects of this outcome are examined further in the “Weaknesses of Asset-
Size Based Tailoring” section below.

18 FDIC, FDIC Community Banking Study, December 2020, Chapter 4.
19 FDIC, Bank Failures in Brief, data download available at https://www.fdic.gov/bank/historical/bank/.
20 T imothy Curry and Lynn Shibut, “T he Cost of the Savings and Loan Crisis: T ruth and Consequences,” FDIC
Banking Review, vol. 13, no. 2 (2000), pp. 26-33.
21 One exception, discussed above, would be regulations that aim to ameliorate the T BTF problem. T hese regulations
can potentially improve economic efficiency because of moral hazard. Under some size threshold, banks are no longer
potentially T BTF, so exempting such smaller banks would not undermine the regulation’s effectiveness or lead to
regulatory arbitrage, in principle.
Congressional Research Service
6

link to page 6 Over the Line: Asset Thresholds in Bank Regulation

Strengths of Asset-Size Based Tailoring
One of the advantages of using asset size as a qualifying criterion for tailored regulation is
simplicity and transparency. By establishing a single “bright line,” there is no ambiguity about
whether a bank does or does not qualify, and no complex analysis is required by banks or
regulators to make a determination. Asset-threshold rules may limit the opportunity for regulatory
arbitrage. If multiple, complex qualifying criteria are used, there may be multiple avenues
through which a bank could find ways to structure itself and alter its operations to qualify for
relaxed regulation.
Asset size may also be preferable to using another single, objective, easily observed criterion
because it is correlated with many of the other bank characteristics that affect the benefits and
costs of particular regulations. As mentioned in the “Community Banks” section, smal banks are
more likely to practice relationship lending and have fewer resources to dedicate to compliance.
In addition, they tend to be less active (and often not at al active) in complex trading activities
and less likely to hold derivatives and hold more capital compared to larger institutions. For more
information on these correlations, see CRS Report R45051, Tailoring Bank Regulations:
Differences in Bank Size, Activities, and Capital Levels, by David W. Perkins.
Weaknesses of Asset-Size Based Tailoring
If asset size is the predominant criterion to qualify for tailored regulation, this may create
distortionary market “cliff” effects, as banks hesitate to cross thresholds. Suppose a particular
$9.9 bil ion bank, absent certain regulations, would be most profitable and provide funding to the
optimal number of consumers and businesses if it were to expand operations and become a $10.1
bil ion bank. However, the additional regulations that come into effect at the $10 bil ion threshold
could lead the bank to decide to remain at $9.9 bil ion in assets. As a result, economical y
efficient lending and other activities might otherwise not take place.
Multivariable qualifying criteria for exemptions could be designed so that this particular bank
would not be so reluctant to cross the asset threshold. For example, an exemption could be
available to any bank with less than $10 bil ion in assets or a bank with more than $10 bil ion
provided it had less than 5% of total assets as trading assets and a capital leverage ratio of at least
9%. Under those conditions, banks that were larger but wel -capitalized and not involved in
complex trading would avoid added compliance costs.
Some data suggest that these cliff effects may already be occurring. For example, CRS estimates
that, as of the end of 2020, 160 banks held assets that are between 95% and 100% of one of the
asset thresholds covered in the next section (i.e., they are close to a threshold but not over), while
128 banks were between 100% and 105% of a threshold (i.e., over but only slightly). A
disproportionate number of banks were just below an otherwise arbitrary asset size, although the
regulatory threshold is not the only possible explanation.
Another way thresholds could distort markets is by creating a preference for bank mergers and
acquisitions over “organic” growth. Some research suggests that banks approaching such
thresholds are motivated to merge, because they would prefer entering a more stringent regulatory
regime with cost savings from a big jump in economies of scale to incremental y crossing the
line.22 This “in-for-a-penny-in-for-a-pound” strategy makes intuitive sense: If a bank is going to

22 Hailey Ballew, Michael Iselin, and Allison Nicoletti, “Accounting-Based T hresholds and Growth Decisions in the
Banking Industry,” Review of Accounting Studies, forthcoming 2020, https://papers.ssrn.com/sol3/papers.cfm?
abstract_id=2910440.
Congressional Research Service
7

link to page 12 link to page 22 Over the Line: Asset Thresholds in Bank Regulation

enter a new regulatory regime, it would be better to leap over the line by hundreds of mil ions or
bil ions of dollars in assets rather than incurring added regulatory costs for a smal amount of
extra assets.
Another issue with using asset size as a tailoring criterion is that, while correlated with certain
bank characteristics, it often does not directly measure the aspect or aspects of a bank’s
operations that are the basis for providing regulatory relief. For example, if policymakers want to
provide tailoring for banks that use a traditional deposit-taking and loan-making business model,
a qualifying criterion based on the portion of bank assets that are loans and liabilities that are
deposits could achieve that more directly than asset size.
Selected Thresholds and Classifications
There are numerous thresholds at which banks become subject to additional or more stringent
regulations. The following sections do not include an exhaustive and detailed examination of
every regulatory classification and exemption threshold. Instead, after providing historical context
on the use of asset thresholds, the next section presents data indicating how many banks fal
above and below the thresholds and how many are near a threshold. The following sections
examine a selection of prominent thresholds and classifications facing banks, some of which have
been raised multiple times.
How asset size is defined in these regulations varies. Typical y, the regulations use assets as
reported in banks’ cal reports (formal y, the Report of Condition and Income) and measure assets
over some time period, such as in the most recent calendar year or the average over the last four
quarters. Some regulations use an asset threshold but give regulators discretion to reject
individual banks from the exemption. For example, regulators may deny smal banks the right to
adhere to the Community Bank Leverage Ratio (CBLR) if they are deemed too risky. In some
instances, an asset threshold is combined with an activity threshold to create a two-part
exemption test. For example, the Volcker Rule has a cap on asset size and trading assets and
liabilities.23
Provisions applying to banks with less than $20 bil ion in assets are summarized in Table 1 and
cover a wide variety of policy areas. Provisions applying to banks with $50 bil ion in assets or
more are summarized in Table 3.
Table 1. Size-Based Exemptions and Tailoring in Bank Regulation
$20 Bil ion or Less in Assets
Provision
Asset Threshold(s)
Home Mortgage Disclosure Act reporting requirements
$48 mil ion
Management interlock restrictions
$50 mil ion, $10 bil ion
Insurance activities
$50 mil ion
Streamlined SEC reporting requirements
$150 mil ion
Expedited acquisition eligibility and/or streamlined acquisition reporting
$300 mil ion, $3 bil ion, $7.5 bil ion
requirements
Community Reinvestment Act requirements
$330 mil ion, $1.322 bil ion

23 Others exemptions use an activity threshold. For example, mortgage servicers, including banks, are exempt from
certain servicing requirements if they service fewer than 5,000 mortgages annually. 12 C.F.R. §1026.41(e)(4)(ii).
Congressional Research Service
8

Over the Line: Asset Thresholds in Bank Regulation

Provision
Asset Threshold(s)
BHC risk-based capital requirements
$500 mil ion
Corporate governance requirements
$500, mil ion, $1 bil ion, $3 bil ion
Flood insurance escrow requirements
$1 bil ion
High-priced mortgage threshold
$2.23 bil ion
Smal BHC Policy Statement, Col ins Amendment exemption
$3 bil ion
18-month examination cycle
$3 bil ion
Streamlined stock buyback and redemption reporting requirements
$3 bil ion
Tailored cal reports
$5 bil ion
CFPB primary regulator for consumer compliance
$10 bil ion
Interchange fee cap (“Durbin Amendment”)
$10 bil ion
Volcker Rule
$10 bil ion
Portfolio QM
$10 bil ion
Mortgage escrow requirements
$10 bil ion
CBLR eligibility
$10 bil ion
Swap margin and capital requirements
$10 bil ion
Thrift charter opt out
$20 bil ion
Source: CRS.
Notes: In some cases, size is one of multiple criteria that must be met for eligibility. See text for details.
History
Size-based tailoring in bank regulation is not a new phenomenon. For example, Section 7 of the
National Banking Act of 1864, as enacted, general y required a national bank to have initial
capital of $100,000 but required national banks located in cities with a population of greater than
50,000 to have $200,000 of capital. In addition, the Treasury Secretary could approve national
banks with $50,000 of capital in places with populations of less than 6,000.24
Asset-size-based tailoring exemptions have been included or added to bank statutes and
regulations on an ad hoc, and arguably inconsistent, basis over time. For example, Section 309 of
Home Mortgage Disclosure Act (P.L. 94-200, Title III, §309; 89 Stat. 1128)—aimed at reducing
discrimination against certain groups in mortgage lending—included an exemption from
reporting requirements for banks with less than $10 mil ion in assets when it was enacted in
December 1975. (An amendment to account for inflation was added by P.L. 104-208 in 1996.)
The Community Reinvestment Act (CRA; P.L. 95-128, Title VIII, §§801-806; 91 Stat. 1147-
1148)—enacted less than two years later in October 1977, and aimed at ensuring banks provided
credit to the neighborhoods in which they operated, including those that had been discriminated
against historical y25—did not original y include tailoring. (CRA was amended by P.L. 106-102 in
1999 to provide for less frequent evaluation for banks with less than $250 mil ion in assets and to
grant regulators the authority to implement additional tailoring.)

24 Act of June 3, 1864, ch. 106, §7, 13 Stat. 101.
25 U.S. Congress, House Committee on Financial Services, The Community Reinvestment Act: Thirty Years of
Accom plishm ents, but Challenges Rem ain , 110th Cong., 2nd sess., February 13, 2008, pp. 7-9.
Congressional Research Service
9

link to page 15 link to page 27 link to page 28 link to page 28 Over the Line: Asset Thresholds in Bank Regulation

Broadly, policymakers have been increasingly likely to include tailoring in recent years. Notably,
the Dodd-Frank Act and Basel III added more tailoring in response to the 2007-2009 financial
crisis. Together, they introduced the most significant package of new reforms in a generation, and
policymakers intentional y decided to exempt some banks from parts of them. As enacted, all
banks under $50 bil ion were exempted from the new Federal Reserve enhanced prudential
regulatory regime intended to address systemic risk posed by the large banks, and some banks
over $50 bil ion were exempted from certain parts of the regime and parts of Basel III. The Dodd-
Frank Act also exempted smal er banks from some other requirements that were unrelated to
systemic risk, such as the Durbin Amendment, primary supervision by the Consumer Financial
Protection Bureau (CFPB), and the Collins Amendment.
In the years after the financial crisis, the pendulum swung to providing regulatory relief. The
most substantive statutory change to financial regulation during this period was the Economic
Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA; P.L. 115-174), enacted in
May 2018, which aimed to provide regulatory relief to banks and other financial entities from
certain Dodd-Frank provisions, as wel as other, long-standing regulatory requirements. P.L. 115-
174 introduced or raised a number of thresholds discussed below, such as relief from cal report
requirements, bank exams, qualified mortgage (QM) rules, escrow requirements, and capital
requirements via the Smal Bank Holding Company policy statement and the CBLR.
The regulatory requirements mentioned in this section are described in more detail below.
Current Asset-Size Data
To il ustrate how many banks are subject to each of the regulatory requirements described in this
report, Table 2 shows the number of banks within each asset range based on the size thresholds
highlighted in this report.
The pandemic has created chal enges to interpreting the most recent data on bank assets. As
discussed in more detail in the “Chal enges Facing Banks Due to Recent Asset Growth” section,
the economic uncertainty caused by the pandemic and the huge disbursement of funds by the
government in response to the pandemic has led bank deposits and assets to surge, perhaps
temporarily. To account for this possibility, this section presents the number of banks with assets
in each size group at both the end of 2020 (the most recent data available) and the end of 2019
(the last available data point largely unaffected by the crisis and the measure being used for a
number of regulatory asset thresholds, as discussed in the “Policy Responses Taken Under
Existing Regulator Authorities”).
As of December 31, 2020, 3,404 banks26—more than two-thirds of the industry—were below the
$500 mil ion asset threshold. Of those, 84 banks (fewer than 3%) held at least 95% of the
threshold amount (i.e., between $475 mil ion and $500 mil ion total assets) and so were closely
approaching the threshold. The number of banks below $500 mil ion was notably smal er
compared to a year earlier. Some of the reduction is due to bank mergers, but some banks grew
out of the group “organical y”—that is, internal growth without merging. Although nearly al
other size groups grew from 2019 to 2020, the decrease in the number of banks below $500
mil ion was large enough to cause the total number of banks to decline.
As discussed earlier, banks have an incentive to prevent asset growth from causing them to pass a
threshold that would trigger additional regulatory requirements. If this incentive were significant,
one might observe an unusual y large share of banks just below the various thresholds. In total, a

26 In this case, the term bank is used to mean an FDIC-insured depository institution that submitted the required call
report .
Congressional Research Service
10

link to page 20 Over the Line: Asset Thresholds in Bank Regulation

relatively smal portion (3%) of banks were closely approaching a threshold, though cumulatively
160 banks were near one of the thresholds discussed in this section.
Table 2. Number of Banks By Asset Size*
Total Number in Asset Size Range, and Number Under Upper Threshold but Within 95%

End of 2020
End of 2019
Total Assets
Total Number
Within 95%
Total Number
Within 95%
<$500m
3,404
84
3,770
55
$500m-$1b
716
38
658
54
$1b-$3b
567
13
482
13
$3b-$5b
108
8
86
9
$5b-$10b
104
9
91
5
$10b-$20b
55
5
55
3
$20b-$50b
47
2
42
1
>$50b
49
n/a*
43
n/a*
Total
5,050
160
5,227
141
Source: CRS calculations; Federal Financial Institutions Examinations Council Central Data Repository’s Public
Data Distribution, Bulk Data download, https://cdr.ffiec.gov/public/PWS/DownloadBulkData.aspx.
*Note: These are counts of banks at the FDIC-insured depository institution (IDI) level. As discussed in detail in
the “Enhanced Prudential Regulation” section below, BHCs above $50 bil ion are subject to a tiered enhanced
prudential regulation framework that is based on asset size and other criteria. At the end of 2019, one IDI and
its parent BHC were within 95% of the $250 bil ion threshold. Both exceeded that threshold in 2020. At the end
of 2020, one IDI was within 95% of the $100 threshold. Its parent was already above that threshold with more
than $125 bil ion.
Thresholds Below $500 Million
Some regulatory thresholds are set relatively low. A number of them exempt banks and their
BHCs from certain reporting requirements. Banks under $48 mil ion assets are exempt from
reporting requirements under the Home Mortgage Disclosure Act, which requires banks to
maintain and report data on the mortgage applications and loans that can be checked for
discriminatory lending patterns.27 Publicly listed state banks that are members of the Federal
Reserve with under $150 mil ion in assets can substitute cal reports for SEC-required filings.28
Savings and loan holding companies with under $150 mil ion in assets have streamlined reporting
requirements for permissible nonbank acquisitions.29 Wel -run BHCs with under $300 mil ion in
assets are exempted from certain reporting requirements for an acquisition of another bank or
eligible nonbank firm.30

27 T his threshold is adjusted annually for inflation to the nearest million. See 12 U.S.C. §2808(b); and CFPB, “Home
Mort gage Disclosure (Regulation C) Adjustment to Asset -Size Exemption T hreshold,” 85 Federal Register 83409-
83411, December 22, 2020.
28 12 C.F.R. §208.36(b).
29 12 C.F.R. §238.53(c)(2)(iii)-(iv).
30 12 C.F.R. §225.14(a)(1)(vi) and 12 C.F.R. §225.23(c)(5)(ii).
Congressional Research Service
11

Over the Line: Asset Thresholds in Bank Regulation

Other exemptions al ow banks or their management to engage in activities that would otherwise
not be permissible. Management interlock restrictions limit the ability of a management official
or director to work for more than one unaffiliated bank at a time, but banks with less than $50
mil ion in assets are exempted if they are located in the same metropolitan area (but not the same
community).31 BHCs with under $50 mil ion in assets may engage in certain insurance activities
that may not otherwise be permitted.32 Wel -managed BHCs under $300 mil ion in assets are not
subject to risky asset limits that would make them ineligible for expedited action on
acquisitions.33
In addition, banks above a $330 mil ion asset threshold (but below $1.322 bil ion) are classified
as intermediate small banks under regulations implementing the CRA, which subjects banks to an
evaluation on how wel they meet community credit needs.34
$500 Million
Banks with assets of less than $500 mil ion are general y exempt from certain corporate
governance regulations pertaining to independent auditing, financial reporting, and internal
controls implemented under Section 36 of the Federal Deposit Insurance Corporation
Improvement Act (FDICIA; P.L. 102-242).35
BHCs with less than $500 mil ion in assets are exempted from risk-based capital requirements if
they are not engaged in significant nonbanking activities and do not have a material amount of
debt or equity registered with the Securities and Exchange Commission.36
$1 Billion
Banks with assets of more than $1 bil ion are subject to more strict corporate governance
regulations pertaining to certain independent auditing, financial reporting, and internal controls
implemented pursuant to the FDICIA.37
Banks with less than $1 bil ion in assets are exempt from regulations requiring lenders to
establish flood insurance escrow accounts for loans secured by residential real estate or mobile
homes in certain flood areas.38 The regulations implement the Biggert-Waters Flood Insurance
Reform Act of 2012 (Division F, Title II of P.L. 112-141) and the Homeowner Flood Insurance
Affordability Act (P.L. 113-89). An escrow account is an account that a “mortgage lender may set

31 12 C.F.R. §212.3(b) and 12 C.F.R. §348.3(b).
32 12 C.F.R. §225.28(b)(11)(vi).
33 12 C.F.R. §225.14(c)(6)(ii) and 12 C.F.R. §225.23(c)(5)(ii).
34 T his threshold is adjusted annually for inflation to the nearest million. See 12 C.F.R. §§228.12(u)(2), 345.12(u)(2);
and Federal Reserve and FDIC, “Community Reinvestment Act Regulations,” 85 Federal Register 83747-83749,
December 23, 2020.
35 12 U.S.C. §1831m(j). T he statute mandated an exemption threshold of at least $150 million but explicitly granted the
FDIC the authority to set a higher threshold “by regulation.” See 12 C.F.R. §363.1.
Separate from the FDICIA requirements, banks with publicly traded stock (like all companies with publicly traded
stock) are subject to management reporting and external auditing requirements under the Sarbanes-Oxley Act of 2002
(P.L. 107-204), including any publicly traded bank with less than $500 million in assets. Banks meeting the FDICIA’s
corporate governance requirements are generally meeting the Sarbanes-Oxley standards.
36 12 C.F.R. Part 225, Appendix A.
37 12 C.F.R. §363.2-363.5.
38 12 C.F.R. §339.5(c)(1).
Congressional Research Service
12

Over the Line: Asset Thresholds in Bank Regulation

up to pay certain recurring property-related expenses.”39 Escrow accounts provide a way for
homeowners to make monthly payments for annual or semi-annual expenses, but maintaining
escrow accounts for borrowers is potential y costly for banks.
As mentioned above, CRA compliance examination is simpler for banks below a $1.322 bil ion
threshold, which classifies those banks as small banks.40 While not exactly a $1 bil ion threshold
because of an annual inflation adjustment, banks over $1 bil ion are close to being over this
threshold.
$3 Billion
Before crossing the $3 bil ion threshold, banks with less than $2.23 bil ion (adjusted for inflation
from a $2 bil ion initial threshold set in 2013) do not have to establish escrow accounts for
mortgages with interest rates that exceed average rates by certain amounts.41
Banks can also become eligible for less frequent examination if they hold less than $3 bil ion in
assets (last raised in P.L. 115-174 from $1 bil ion).42 General y, federal bank regulators must
conduct an on-site examination of the banks they oversee at least once in each 12-month period.
However, if a bank below this asset threshold meets certain criteria related to capital adequacy
and scores received on previous examinations, then it is examined once every 18 months.
The Federal Reserve Smal Bank Holding Company (BHC) and Smal Saving and Loan Holding
Company Policy Statement applies to BHCs with under $3 bil ion in total assets. In the policy
statement, the Federal Reserve permits BHCs with under $3 bil ion in total assets to take on more
debt in order to complete a merger (provided they meet certain other requirements concerning
nonbank activities, off-balance-sheet exposures, and debt and equities outstanding) than would be
al owed for a larger BHC.43 The threshold in the statement has been raised several times since it
was first introduced, most recently by P.L. 115-174. In addition, Section 171 of the Dodd-Frank
Act (sometimes referred to as the “Collins Amendment”)44 exempts BHCs subject to this policy
statement from having to meet the same capital requirements at the holding company level that
depository subsidiaries face.45 As a result, the bank subsidiaries of BHCs with less than $3 bil ion
are required to be wel -capitalized and comply with al capital requirements, but Basel III capital
requirements are not applied to the parent holding company.
The Fed has linked some unrelated requirements to the Smal Bank Holding Company threshold.
BHCs with under $3 bil ion in assets also have streamlined reporting requirements for purchase

39 CFPB, “What Is an Escrow or Impound Account?,” http://www.consumerfinance.gov/askcfpb/140/what-is-an-
escrow-or-impound-account.html.
40 Banks below this threshold but above $330 million are placed in a small bank subset called intermediate small banks.
Federal Reserve and FDIC, “Community Reinvestment Act Regulations,” 85 Federal Register 83747-83749,
December 23, 2020.
41 CFPB, “ T ruth in Lending Act (Regulation Z) Adjustment to Asset -Size Exemption T hreshold,” 85 Federal Register
83411-83415, December 22, 2020, https://www.federalregister.gov/documents/2020/12/22/2020-28231/truth-in-
lending-act-regulation-z-adjustment -to-asset-size-exemption-threshold.
42 12 U.S.C. §1820(d)(4).
43 12 C.F.R. Appendix C to Part 225.
44 12 U.S.C. §5371(b)(5)(C).
45 For banks with $15 billion or less in assets at the end of 2009, the preferential capital treatment of trust preferred
securities issued before May 2010 is grandfathered. “ T reatment of Certain Collateralized Debt Obligations Backed
Primarily by T rust Preferred Securities with Regard to Prohibitions and Restrictions on Certain Interests in, and
Relationships with, Hedge Funds and Private Equity Funds,” 79 Federal Register 5224, January 21, 2014.
Congressional Research Service
13

Over the Line: Asset Thresholds in Bank Regulation

or redemption of their own securities or acquisition of another bank or eligible nonbank firm.46
Under the regulations implementing the FDICIA corporate governance regulations, banks with
more than $3 bil ion face additional requirements related to audit committee membership.47
$5 Billion
Al banks must submit a report of condition and income to the federal bank agencies at the end of
every financial quarter of the year (often referred to as the “cal report”). As early as 1976, bank
regulators required more information in these reports from large banks than from smal banks.48
Today, banks file one of three main versions of the cal report based on size, whether a bank has
offices in other countries, and bank complexity, with smal simple banks filing the shortest
version and large complex banks the longest. In addition, there are numerous line items and
memoranda that banks are required to fil out only if they are above various asset thresholds.49
Enumerating al the cal report differences implemented by regulators is beyond the scope of this
analysis of selected thresholds. However, one statutorily mandated difference is notable.
Section 205 of P.L. 115-174 mandated that the bank regulators reduce the reporting requirements
in the first and third quarters of the year for banks with assets under $5 bil ion in assets.50 In June
2019, the regulatory agencies issued a final rule pursuant to the provision, raising the threshold
for banks permitted to file the shortest form of the cal report from $1 bil ion to $5 bil ion and
removing certain line items from the first- and third-quarter requirements.51
$10 Billion
The CFPB is the primary federal agency for consumer compliance supervision and enforcement
at banks with more than $10 bil ion in assets. Banks with fewer assets have their prudential bank
regulators as the primary supervisors for consumer compliance.52 The CFPB may issue rules that
would apply to smal er banks from authorities granted under the federal consumer financial
protection laws, however.53

46 12 U.S.C. §225.4(b)(2)(iii) and 12 C.F.R. §225.14(a)(1)(v)(A) and 12 C.F.R. §225.23(a)(1)(iii)(A). For acquisitions,
the threshold is $7.5 billion for qualifying community banks subject to the CBLR, and the reporting requirements
differ.
47 12 C.F.R. §363.5(b).
48 For example, Form FFIEC 015 (Formerly 105-S), Large Bank Supplements to the Consolidated Report of Condition ,
was collected from 1976 to 1983. See Federal Reserve, “ CALL Micro Report Series Description,”
https://www.federalreserve.gov/apps/mdrm/pdf/Call_59.pdf.
49 T he longest version, known as the FFIEC 031, is filed by banks that either (1) have domestic and foreign offices, (2)
have only domestic offices but more than $100 billion of assets, or (3) are classified as an “ advanced approaches” bank
due to size or complexity. T he middle version, FFIEC 041, is filed by banks that have only domestic offices, have less
than $100 billion of assets, and are not an advanced approaches bank. T he shortest form, FFIEC 051 , is filed by banks
with less than $5 billion of assets that do not have to file the 041 for risk -based criteria.
50 12 U.S.C. §1817(a)(12).
51 Federal Reserve, OCC, and FDIC, “Reduced Reporting for Covered Depository Institutions,” 84 Federal Register
29039-29044, June 21, 2019.
52 12 U.S.C. §5315, 12 U.S.C. §5516.
53 T itle 12, Section 5581(12), of the U.S. Code transferred to the CFPB primary rulemaking authority over 19
“enumerated consumer laws.”
Congressional Research Service
14

Over the Line: Asset Thresholds in Bank Regulation

The interchange fees that banks with over $10 bil ion in assets receive when customers use debit
cards to make purchases are capped by the Federal Reserve pursuant to Section 1075 of the
Dodd-Frank Act (sometimes referred to as the “Durbin Amendment”).54
Section 619 of the Dodd-Frank Act—often referred to as the Volcker Rule—general y prohibited
banks from engaging in proprietary trading or sponsoring hedge funds or private equity funds.55
Proprietary trading refers to owning and trading securities for a bank’s own portfolio with the aim
of profiting from price changes.56 Section 203 of P.L. 115-174 created an exemption from the
Volcker Rule for banks with (1) less than $10 bil ion in assets and (2) trading assets and trading
liabilities less than 5% of total assets.
In addition to the Volcker Rule exemption, several other provisions of P.L. 115-174 also created
an exemption for banks under $10 bil ion in assets:
 Section 101 creates a new QM compliance option for mortgages that banks or
credit unions with less than $10 bil ion in assets originate and hold in portfolio.
To be eligible, the lender has to consider and document a borrower’s debts,
incomes, and other financial resources, and the loan has to satisfy certain
product-feature requirements.57
 Section 108 exempts any loan made by a bank or credit union from certain
escrow requirements if the institution has assets of $10 bil ion or less, originated
fewer than 1,000 mortgage loans in the preceding year, and meets certain other
criteria.
 Section 201 directs regulators to develop a CBLR and set a threshold ratio of
between 8% and 10% capital to unweighted assets—compared with the general
leverage ratio requirement of 5%—to be considered wel capitalized. If a bank
with less than $10 bil ion in assets maintains a CBLR above that threshold, it
would be exempt from al other leverage and risk-based capital requirements.
Banking regulators may determine that an individual bank with under $10 bil ion
in assets is not eligible to be exempt based on its risk profile.58
Two other recent $10 bil ion exemptions are not from P.L. 115-174. Management interlock
restrictions limit the ability of a bank manager or director to work for more than one unaffiliated
bank at a time, but banks with less than $10 bil ion in assets are exempted if they are not located
in the same metropolitan area or if they collectively control less than 20% of deposits in the

54 For more information, see CRS Report R41913, Regulation of Debit Interchange Fees, by Darryl E. Getter.
55 T he rule is named after Paul Volcker, a former chair of the Federal Reserve, a former chair of President Obama’s
Economic Recovery Advisory Board, and a vocal advocate of a prohibition on proprietary trading at commercial banks.
56 OCC et al., “ Revisions to Prohibitions and Restrictions on Proprietary T rading and Certain Interests in, and
Relationships with, Hedge Funds and Private Equity Funds,” 84 Federal Register 35008, July 22, 2019,
https://www.govinfo.gov/content/pkg/FR-2019-07-22/pdf/2019-15019.pdf.
57 For background on QM, see CRS In Focus IF11761, The Qualified Mortgage (QM) Rule and Recent Revisions, by
Darryl E. Getter.
58 A detailed discussion of each of these provisions can be found in CRS Report R45073, Economic Growth,
Regulatory Relief, and Consum er Protection Act (P.L. 115 -174) and Selected Policy Issues, coordinated by David W.
Perkins. For background on the CBLR, see CRS Report R45989, Com m unity Bank Leverage Ratio (CBLR):
Background and Analysis of Bank Data , by David W. Perkins. Banks must comply with capital requirements as part of
safety and soundness regulation. T he CBLR is an alternative capital requirement regime for qualifying banks with less
than $10 billion in assets.
Congressional Research Service
15

Over the Line: Asset Thresholds in Bank Regulation

community or metropolitan area.59 The bank regulators raised this threshold from a combined
$1.5 bil ion and $2.5 bil ion exemption in 2019.60
The Dodd-Frank Act subjected non-cleared swaps to margin and capital requirements. P.L. 114-1
created exemptions from these requirements for certain entities, including for banks with less than
$10 bil ion in assets.61
$20 Billion
Section 206 of P.L. 115-174 creates a mechanism for federal savings associations (or “thrifts”)
with under $20 bil ion in assets to opt out of the federal thrift regulatory regime and enter the
national bank regulatory regime without having to change their charters. An institution that makes
loans and takes deposits can have one of several types of charters—including a national bank
charter and federal savings association charter, among others—each of which subjects the
institutions to regulations that can differ in certain ways.62 Without this provision, if an institution
wanted to switch from one regime to another, it would have to change its charter, which can be
time consuming and costly.63
Enhanced Prudential Regulation
One pil ar of the Dodd-Frank Act’s response to addressing financial stability and ending TBTF
was a new enhanced prudential regulatory (EPR) regime that applies to large BHCs and foreign
banks operating in the United States.
Under this regime, the Federal Reserve is required to apply a number of safety and soundness
requirements to large banks that are more stringent than those applied to smal er banks. These
requirements are intended to mitigate systemic risk (the potential to cause financial instability)
posed by large banks:
 Stress tests and capital planning ensure banks hold enough capital to survive a
crisis.
 Living wills—official y cal ed resolution plans—provide a plan to safely wind
down a failing bank.
 Liquidity requirements ensure that banks are sufficiently liquid if they lose
access to funding markets.
 Counterparty limits restrict the bank’s exposure to counterparty default.
 Risk management requires publicly traded companies to have risk committees
on their boards and banks to have chief risk officers.

59 12 C.F.R. §212.3(c) and 12 C.F.R. §348.3(c).
60 Federal Reserve, FDIC, OCC, “Agencies Issue Final Rule to Update Management Interlock Rules,” press release,
October 2, 2019, https://www.federalreserve.gov/newsevents/pressreleases/bcreg20191002a.htm. T he Depository
Institution Management Interlocks Act (12 U.S.C. §3201 et seq.) gives the agencies authority to adjust the thresholds
by regulation to allow for inflation or market changes.
61 Federal Reserve et al., “Agencies Finalize Rule Exempting Certain Commercial and Financial End Users from Initial
and Variation Margin Requirements,” press release, August 1, 2016, https://www.federalreserve.gov/newsevents/
pressreleases/bcreg20160801b.htm.
62 Federal Financial Institutions Examination Council, Interagency Statement on Regulatory Conversions (FIL -40-
2009), July 7, 2009.
63 OCC, “Covered Savings Associations,” 83 Federal Register 47102, September 18, 2018.
Congressional Research Service
16

link to page 22 link to page 23 Over the Line: Asset Thresholds in Bank Regulation

 Financial stability requirements provide for regulatory interventions that can be
taken only if a bank poses a threat to financial stability.
 Capital requirements under Basel III, an international agreement, require large
banks to hold more capital than other banks do to potential y absorb unforeseen
losses.
The Dodd-Frank Act automatical y subjected al BHCs and foreign banks with more than $50
bil ion in assets to EPR. In 2018, P.L. 115-174 created a more “tiered” and “tailored” EPR regime
for banks. It eliminated most EPR requirements for banks with assets between $50 bil ion and
$100 bil ion, with the exception of risk management requirements (see Table 3). Banks that have
been designated as global systemical y important banks by the Financial Stability Board (an
international, intergovernmental forum) or have more than $250 bil ion in assets automatical y
remain subject to al EPR requirements, as modified. Section 401 of P.L. 115-174 gives the
Federal Reserve discretion to apply most individual EPR provisions to banks with between $100
bil ion and $250 bil ion in assets on a case-by-case basis only if the provisions would promote
financial stability or the institution’s safety and soundness.
Under the Federal Reserve’s implementing rules, large banks are placed in one of four categories
based on their size and complexity, and progressively more stringent requirements are imposed on
them.64 The number of banks in each category is shown in Table 4. Foreign banks performing
certain activities in the United States are required to form intermediate holding companies (IHCs)
for those activities. Foreign banks are placed in the same Categories II-IV, based on their U.S.
assets, with requirements for each category similar to those applied to U.S. banks. Most
requirements are applied to the U.S. IHC, but a few would apply to al U.S. operations, including
U.S. branches and agencies. Overal , the rule would mostly continue to defer to home-country
regulation for foreign banks operating in the United States whose IHCs do not qualify as
Category II or III banks. The rule also extended EPR for the first time to large savings and loan
(thrift) holding companies that are not predominantly engaged in insurance or nonfinancial
activities.65

64 Federal Reserve, “Federal Reserve Board Finalizes Rules T hat T ailor Its Regulations for Domestic and Foreign
Banks to More Closely Match T heir Risk Profiles,” press release, October 10, 2019, https://www.federalreserve.gov/
newsevents/pressreleases/bcreg20191010a.htm; Federal Reserve, “ Federal Reserve Board Issues Final Rule Modifying
the Annual Assessment Fees for Its Supervision and Regulation of Large Financial Companies,” press release,
November 19, 2020, https://www.federalreserve.gov/newsevents/pressreleases/bcreg20201119a.htm; Federal Reserve,
FDIC, OCC, “Agencies Issue Final Rule to Strengthen Resilience of Large Banks,” press release, October 20, 2020,
https://www.federalreserve.gov/newsevents/pressreleases/bcreg20201020b.htm; Federal Reserve, FDIC, “ Agencies
finalize changes to resolution plan requirements; keeps requirements for largest firms and reduces requirements for
smaller firms,” press release, October 28, 2019, https://www.federalreserve.gov/newsevents/pressreleases/
bcreg20191028b.htm.
65 For a summary of the rule, see Federal Reserve, “Requirements for Domestic and Foreign Banking Organizations, ”
https://www.federalreserve.gov/aboutthefed/boardmeetings/files/tailoring-rule-visual-20191010.pdf.
Congressional Research Service
17

Over the Line: Asset Thresholds in Bank Regulation

Table 3. EPR Requirements
Category II
Category IV
(>$700B
Category III
(Other
Category I
assets or see
(>$250B or
$100B-
Uncategorized
Requirement
(G-SIBs)
notes)
see notes)
$250B)
($50B-$100B)
Provisions previously applied to BHCs with >$10B assets:
Company-run
annual
annual
biannual
none
none
stress tests
Risk committee
applies
applies
applies
applies
applies
Provisions previously applied to BHCs with >$50B assets:
Fed-run stress
annual
annual
annual
biannual
none
tests
Capital plan
annual
annual
annual
annual
none
Living wil s
biennial
triennial
triennial
nonea
nonea
Liquidity stress
most stringent
most stringent
less stringentb
least stringent
none
test (firm-run),
reporting, and
risk
management
LCR
more stringent
more stringent
less stringentb
nonec
none
NSFR
more stringent
more stringent
less stringentb
nonec
none
SCCL
more stringent
less stringent
less stringent
none
none
Chief risk
applies
applies
applies
applies
applies
officer
Emergency
applies
applies
applies
none
none
provisions
Subject to
OFR, EPR, OLA
OFR, EPR, OLA
OFR, EPR, OLA
EPR (less
OLA
assessments for:
stringent),
OLA
Simplified capital no relief
no relief
no relief
applies
applies
treatment of
certain assets
Stress capital
applies
applies
applies
applies
none
bufferd
Provisions previously applied to BHCs with >$250B assets or >$10B in foreign exposure:
SLR
more stringent
less stringent
less stringent
none
none
(eSLR)
Advanced
applies
applies
not required
not required
not required
approaches
AOCI included
mandatory
mandatory
optional
optional
optional
in capital
calculation
Countercyclical
applies
applies
applies
none
none
capital buffer
Provisions previously applied to G-SIBs:
TLAC
applies
none
none
none
none
Congressional Research Service
18

link to page 23 Over the Line: Asset Thresholds in Bank Regulation

Category II
Category IV
(>$700B
Category III
(Other
Category I
assets or see
(>$250B or
$100B-
Uncategorized
Requirement
(G-SIBs)
notes)
see notes)
$250B)
($50B-$100B)
G-SIB capital
applies
none
none
none
none
surcharge
Source: CRS.
Notes: LCR = Liquidity Coverage Ratio, NSFR = Net Stable Funding Ratio, SCCL = Single Counterparty Credit
Limit, SLR = Supplementary Leverage Ratio, eSLR = enhanced Supplementary Leverage Ratio, G-SIB = Global
Systemical y Important Bank, AOCI = Accumulated and Other Comprehensive Income, TLAC = Total Loss
Absorbency Capacity, OFR = Office of Financial Research, EPR = Enhanced Prudential Regulation, OLA =
Orderly Liquidation Authority, IHC = Intermediate Holding Company. Banks by category are listed in Table 4.
Banks under $700 bil ion in assets are ranked as Category II if they have over $75 bil ion in cross-jurisdictional
activity. Banks under $250 bil ion in assets are ranked as Category III if they have more than $75 bil ion in
nonbank assets, weighted short-term wholesale funding, or off-balance sheet exposure. Previously applied
thresholds refers to rules under the Dodd-Frank Act and Basel III before amendments from P.L. 115-174, as
applied to U.S. banks. For brevity, this table does not specify whether each requirement is applied to a foreign
bank’s IHC or total U.S. operations.
a. Foreign banks with >$250 bil ion in global assets in these categories face a less stringent requirement than
do U.S. banks.
b. Category III banks with >$75 bil ion in weighted short-term wholesale funding face the more stringent
version of the rule.
c. Category IV banks with >$50 bil ion in weighted short-term wholesale funding face the least stringent
version of the rule.
d. The stress capital buffer was not implemented until after the enactment of P.L. 115-174.
Table 4. Number of Holding Companies Subject to EPR
Category
2020
2019
Category IV
10 U.S., 5 foreign IHC
12 U.S., 5 foreign IHC
Category III
5 U.S., 7 foreign IHC
4 U.S., 6 foreign IHC
Category II
1 U.S., 0 foreign IHC
1 U.S., 0 foreign IHC
Category I
8 U.S., 0 foreign IHC
8 U.S., 0 foreign IHC
Source: Federal Reserve, Supervision and Regulation Report, November 2020, https://www.federalreserve.gov/
publications/supervision-and-regulation-report.htm; Federal Reserve, Visual, October 10, 2019,
https://www.federalreserve.gov/newsevents/pressreleases/bcreg20191010a.htm.
Notes: For EPR categories, data are as of October 2019 and November 2020. For definitions of EPR categories,
see text. For foreign banks, most EPR requirements are imposed only on their IHCs.
$50 Billion
Any bank with over $50 bil ion in assets is required to meet risk management requirements.
Specifical y, it is required to form a risk committee and appoint a chief risk officer.
Banks with over $50 bil ion and under $100 bil ion in assets are no longer required to comply
with other EPR standards, pursuant to P.L. 115-174.
Category IV ($100-$250 Billion)
Banks with over $100 bil ion in assets that do not meet the criteria of Categories I, II, or III are
classified as Category IV banks.
Congressional Research Service
19

Over the Line: Asset Thresholds in Bank Regulation

Category IV banks are subject to Federal Reserve–run stress tests—which measure how much
banks’ capital levels would decline in a stressed scenario—every other year.
The stress test results feed into the banks’ capital requirements through the stress capital buffer,
with which Category I-IV banks must comply. Category I-IV banks must also submit annual
capital plans, which explain how they wil comply with capital requirements under the stress tests
based on the banks’ planned dividends, share buybacks, and debt and equity issuance.
Category IV banks with over $50 bil ion in short-term wholesale funding are required to meet a
number of liquidity requirements. They must comply with a reduced Liquidity Coverage Ratio
(LCR), which requires a minimum proportion of liquid assets, and a reduced Net Stable Funding
Ratio (NSFR), which requires a minimum proportion of stable funding. Al Category IV banks
are required to conduct quarterly company-run liquidity stress tests, which measure how much
liquidity would be needed in a stressed environment, and comply with reduced liquidity risk
management standards.
Category I-IV foreign banks with over $250 bil ion in global assets are required to meet the
single-counterparty credit limit, which limits how exposed a bank can be to one counterparty,
imposed in their home country.
Category III ($250-$700 Billion)
Banks with over $250 bil ion in assets that are not Category I or II banks are classified as
Category III banks. Banks with between $100 bil ion and $250 bil ion in assets that pose more
systemic risk—because they have over $75 bil ion in nonbank assets, short-term wholesale
funding, or off-balance-sheet exposure—are also classified as Category III banks.
In addition to the requirements noted above, Category III banks must perform company-run stress
tests every other year. They are also subject to a less stringent version of the LCR, the NSFR, and
monthly liquidity reporting requirements unless their short-term wholesale funding exceeds $75
bil ion, in which case they are subject to the more stringent requirements.
Category I-III banks are subject to Federal Reserve–run stress tests every year. They are also
subject to the countercyclical capital buffer, which gives the Federal Reserve the option to raise
capital requirements in periods of heightened systemic risk. They are also subject to monthly
internal liquidity stress tests and liquidity risk management standards. In addition, these banks are
subject to a number of provisions in the Dodd-Frank Act that can be invoked only in case of
emergency. These include reporting requirements to the Financial Stability Oversight Council;
early remediation requirements at the holding company level; the ability of the Federal Reserve to
limit a firm’s mergers and acquisitions, restrict specific products it offers, terminate or limit
specific activities, or require the firm to divest assets; the ability of the Federal Reserve to block a
nonbank acquisition on financial stability grounds; the ability to subject banks to an emergency
15-to-1 debt-to-equity ratio; and expanded FDIC examination and enforcement powers. Banks
that are not Category I-III banks are al owed to use a simplified method to determine capital
requirements for certain assets, such as mortgage servicing assets and deferred tax assets.
Category II and III banks are subject to a less stringent version of the supplementary leverage
ratio, a capital requirement that includes off-balance-sheet assets. They are also subject to a less
stringent version of the single-counterparty credit limit. They are also required to submit living
wil s on a three-year cycle.66

66 Foreign banks with over $250 billion in global assets that are not Category I, II, or III banks would be required to
submit reduced living wills on a three-year cycle.
Congressional Research Service
20

Over the Line: Asset Thresholds in Bank Regulation

Category II ($700 Billion)
Banks with over $700 bil ion in assets that are not Category I banks are classified as Category II
banks. Banks with between $100 bil ion and $700 bil ion in assets that have over $75 bil ion in
cross-jurisdictional (overseas) activity are also classified as Category II banks. There is currently
one Category II bank (Northern Trust) that qualifies because of its cross-jurisdictional activities.
It has around $150 bil ion in assets.
In addition to the requirements noted above, Category I and II banks are subject to annual
company-run stress tests. They must use the more complex “advanced approaches” method to
comply with capital standards. They must comply with the full LCR and NSFR and daily
liquidity reporting. They cannot opt out of holding capital against other comprehensive income.
Category I: Global Systemically Important Banks (G-SIBs)
Basel III created a designation for certain banks that (if one were to fail or become distressed)
could inflict destabilizing losses and contagion effects throughout the global financial system,
cal ing such institutions global systemically important banks (G-SIBs).67 Each year, the Financial
Stability Board updates its list of G-SIBs around the world. In the United States, the Federal
Reserve designates banks as G-SIBs based on a scoring system using two methods (cal ed method
1 and method 2) to measure an institution’s systemic importance—the likelihood that distress at
or failure of the institution could destabilize the global financial system.68 A detailed examination
of how the scores are calculated and what qualifies a bank as a G-SIB is beyond the scope of this
report; what is pertinent is that the size of the institution constitutes one of 12 indicators measured
under method 1 and one of nine indicators in method 2.69 As a result, the eight U.S. banks
designated as G-SIBs as of the end of the third quarter of 2020 are not the eight largest U.S.
banks (rather they are the six largest and the 11th and 15th largest).
The eight U.S. G-SIBs are classified as Category I banks and are subject to the most stringent
regulations and supervisory scrutiny of any group of banks.70 In addition to the requirements
noted above, they must hold additional capital to avoid facing certain limitations on shareholder
payouts and bonus payments.71 Specifical y, G-SIBs face two capital requirements, the G-SIB
surcharge, which requires them to hold higher levels of risk-weighted capital, and the enhanced
supplementary leverage ratio (eSLR), which requires them to meet a higher leverage ratio that is
not risk-weighted. In addition, these banks must hold a certain percentage of capital and debt that
meets certain quality requirements designed to ensure that the banks have adequate total loss

67 Basel Committee on Banking Supervision, Global Systemically Important Banks: Assessment Methodology and the
Additional Loss Absorbency Requirem ent,” November 2011, at http://www.bis.org/publ/bcbs207.pdf.
68 Federal Reserve System, “Regulatory Capital Rules: Implementation of Risk -Based Capital Surcharges for Global
Systemically Important Bank Holding Companies; Final Rule,” 80 Federal Register 157, August 14, 2015,
https://www.gpo.gov/fdsys/pkg/FR-2015-08-14/pdf/2015-18702.pdf.
69 T he first scoring method closely adheres to the standards agreed to in Basel III. T he second method is based on the
Basel III system but includes certain changes made by the Federal Reserve that place more emphasis on the banks’
funding sources. Both scoring methods include indicators of interconnectedness, complexity, and cross-jurisdictional
activity. Method 1 also measures substitutability—how easily its client servicing or infrastructure support could be
picked up by another institution—and method 2 measures an institution’s use of certain funding markets.
G-SIB scoring uses bank exposures as the size indicator rather than assets, although the asset -size indicator is more
commonly used in most U.S. bank regulation thresholds.
70 Although some foreign G-SIBs have U.S. operations, none is considered a domestic G-SIB for purposes of EPR.
71 Federal Reserve System, “Regulatory Capital Rules: Implementation of Risk -Based Capital Surcharges for Global
Systemically Important Bank Holding Companies,” 80 Federal Register 49082-49089, August 14, 2015.
Congressional Research Service
21

Over the Line: Asset Thresholds in Bank Regulation

absorbing capacity, thus improving their ability to survive losses and the likelihood they could be
resolved in an orderly fashion in the event of failure.72 They are also required to submit living
wil s on a two-year cycle.
Supervisory Differences Based on Size
Up to this point, this report has only considered how regulations differ based on banks’ asset size.
But regulators also supervise banks—through examinations and oversight of a bank’s compliance
with bank regulations, for example—differently based on size. For example, the largest banks are
subject to onsite monitoring, more frequent examinations, and more specialized examinations.
Some are concerned that supervision practices that are intended to apply only to large banks
could trickle down to smal banks.73 One way that regulators address these issues is by structuring
their internal organizations so that different parts of the agencies have responsibility for
supervising different banks:
 The OCC has a Senior Deputy Comptroller for Midsize/Community Banking
Supervision, who focuses on addressing supervisory issues related to smal and
midsize national banks, and a Senior Deputy Comptroller for Large Bank
Supervision, who addresses issues related to the largest, most complex banks
national banks. The OCC also has separate booklets in the Comptroller’s
Handbook that describe the different ways that large banks and community banks
are to be examined.74
 A subcommittee of Federal Reserve board members on Smal er Regional and
Community Banking was established in 2011 “with a primary goal … [of] an
understanding of the unique characteristics of community and regional banks and
… the potential for excessive burden and adverse effects on lending. Since its
establishment, the subcommittee has led a number of initiatives focused on
reducing regulatory burden on community banking organizations.”75 “To take
account of differences in business models, risks, relative regulatory burden, and
other salient considerations,”76 the Federal Reserve has separate supervisory
frameworks for G-SIBs and the most complex foreign banks (the Large
Institution Supervision Coordinating Committee), other foreign banks and banks
with over $100 bil ion in assets, banks with assets between $10 bil ion and $100
bil ion, and banks with less than $10 bil ion in assets.77
 The FDIC has a separate Office of Complex Institution Supervision and
Resolution that focuses on large and complex financial institutions. The Division

72 Federal Reserve System, “T otal Loss-Absorbing Capacity, Long-T erm Debt, and Clean Holding Company
Requirements for Systemically Important U.S. Bank Holding Companies and Intermediate Holding Companies of
Systemically Important Foreign Banking Organizations,” 80 Federal Register 74926-74931, November 30, 2015.
73 Former Federal Reserve Governor T arullo discussed the possibility of “supervisory trickle down” for stress testing.
See T arullo, “A T iered Approach to Regulation and Supervision of Community Banks.”
74 OCC, Comptroller’s Handbook, http://www.occ.gov/publications/publications-by-type/comptrollers-handbook/
index-comptrollers-handbook.html.
75 Federal Reserve Board, Annual Report 2013, http://www.federalreserve.gov/publications/annual-report/2013-
supervision-and-regulation.htm#xbox4.easingregulatoryburdenoncommun-99a70003.
76 T arullo, “A T iered Approach to Regulation and Supervision of Community Banks.”
77 Federal Reserve, Supervision and Regulation Report, November 2020, https://www.federalreserve.gov/publications/
2020-november-supervision-and-regulation-report-supervisory-developments.htm.
Congressional Research Service
22

Over the Line: Asset Thresholds in Bank Regulation

of Risk Management Supervision examines the remaining FDIC-supervised
institutions. To give additional emphasis to community banks, the FDIC has an
internal Advisory Committee on Community Banking78 and maintains the
Community Banking Research Program.79
Some of the regulatory requirements with statutory thresholds discussed above involve bank
supervision, such as the reduced frequency of exams for smal er banks.
Issues for Congress
Regulatory Implications of Recent Asset Growth
Challenges Facing Banks Due to Recent Asset Growth
As the pandemic and the congressional response to it unfolded, deposits at banks increased
rapidly. Market uncertainty likely resulted in people and businesses moving their funds into the
relative safety of bank accounts. Also, the Paycheck Protection Program (PPP) made loans to
businesses, and other programs sent stimulus checks to individuals and supplemental
unemployment insurance payments to the unemployed. Most people and businesses deposited the
disbursed funds in their bank accounts.80 Although bank lending has grown during the
pandemic—largely as a result of participation in the PPP and drawn-down credit lines—banks did
not turn al the new deposits into loans. This was because either (1) they were wary of making
many new loans during an unprecedented economic contraction, (2) there was insufficient
demand for that many new loans, (3) there are capital constraints and logistical considerations to
underwriting so many new loans, or (4) some combination of these factors. Instead, banks held a
portion of the new funds in the safe assets of their Federal Reserve account balances and U.S.
Treasuries. In addition, the Federal Reserve’s response to the pandemic greatly increased banks’
account balances at the Federal Reserve and indirectly increased deposits and total assets.81
This rapid expansion of bank balance sheets has a number of regulatory implications. Banks
become subject to additional regulation when they cross certain asset-size thresholds discussed in
this report. In addition, capital requirements are based on the amount of assets a bank holds, and
leverage ratio requirements—in which al assets are treated equal y regardless of how risky they
are—may be particularly problematic. In risk-weighted capital requirements, Federal Reserve
account reserves and Treasuries are assigned a 0% weight—and thus do not require banks to hold
capital against them—but leverage ratios do not weight the assets and so require capital be held
against the safe assets. Final y, the fees (cal ed assessments) that al banks pay to the FDIC and
that national banks pay to the OCC are determined by formulas that include assets as a factor.
Thus, banks that participated in the PPP or otherwise have an increase in assets during the
pandemic could—absent congressional or regulator action—incur additional regulatory costs and
be required to raise more capital quickly to maintain their capital ratios. One possible response
banks may take would be to slow asset growth or even reduce assets going forward, possibly by

78 See FDIC, “Advisory Committee on Community Banking,” https://www.fdic.gov/about/advisory-committees/
community-banking/.
79 See FDIC, “Community Banking Research Program,” https://www.fdic.gov/resources/community-banking/.
80 Hugh Son, “U.S. Banks Are ‘Swimming in Money’ as Deposits Increase by $2 T rillion Amid the Coronavirus,”
CNBC, June 21, 2020, https://www.cnbc.com/2020/06/21/banks-have-grown-by-2-trillion-in-deposits-since-
coronavirus-first-hit.html.
81 See CRS Report R46411, The Federal Reserve’s Response to COVID-19: Policy Issues, by Marc Labonte.
Congressional Research Service
23

Over the Line: Asset Thresholds in Bank Regulation

making fewer new loans. Another possible bank response would be to stop accepting new
deposits. Either course would likely be detrimental to the economy and its recovery from the
pandemic.
It is unclear whether this increase in bank assets is temporary or permanent and depends in part
on future policy decisions. Asset growth tied to PPP loans, for example, is likely to be reversed
when the PPP ends and those loans are transformed to federal grants. But asset growth tied to the
growth in bank reserves held at the Fed is, overal , caused by the growth in the Fed’s balance
sheet due to its asset purchases and emergency COVID-19 programs. Although those programs
have mostly expired, the Fed’s asset purchases continue for the time being. After the 2007-2009
financial crisis had ended, the Fed eventual y stopped purchasing assets but never sold any of the
assets it had purchased, and so the Fed’s balance sheet remained large and bank reserves
remained over $1 tril ion higher than they were before the financial crisis.
Whether this increase in bank asset size is permanent or temporary—and wil reverse itself after
the pandemic ends—has implications for policy. Temporary growth in bank balance sheets might
be most efficiently addressed through temporary exemptions based on bank asset size, whereas a
permanent increase might cal for more sophisticated and permanent changes to regulations.
Policy Responses Taken Under Existing Regulator Authorities
To address the issue of banks temporarily crossing regulatory asset thresholds, the Federal
Reserve, OCC, and FDIC issued an interim final rule in December 2020 under which the assets a
bank held as of December 31, 2019, wil be set as the bank’s asset size for the purposes of
numerous regulatory thresholds discussed in this report provided that asset size was less than $10
bil ion. This rule expires on January 1, 2022.82
To address the effects PPP participation would have on bank capital ratios, Section 1102 of the
CARES Act mandated that PPP loans be given a 0% risk-weight for the purposes of determining
banks’ risk-based capital requirements, meaning banks would not have to hold additional capital
to maintain their risk-weighted ratios when holding PPP loans. In addition, the bank regulators’
PPP rule exempted PPP loans pledged as collateral to the Federal Reserve PPP Lending Facility
from al risk-weighted and leverage ratios in capital rules.83
To negate the effect PPP participation could have on bank assessments, the FDIC also exempted
PPP loans from banks’ assessment schedules,84 and the OCC al owed national banks to choose
their December 31, 2019, total asset amounts as the basis for their mid-2020 assessments.85

82 Federal Reserve, OCC, and FDIC, “T emporary Asset T hresholds,” 85 Federal Register 77345-77349, December 2,
2020.
83 T he PPP Lending Facility provides credit to financial institutions making loans under the PPP. Because banks are not
required to hold capital against these loans, this facility increases lending capacity for banks facing high demand to
originate these loans. See Federal Reserve, OCC, and FDIC, “ Federal Bank Regulators Issue Interim Final Rule for
Paycheck Protection Program Facility,” press release, April 9, 2020, https://www.fdic.gov/news/news/press/2020/
pr20050.html.
84 FDIC, Final Rule Mitigating the Deposit Insurance Assessment Effect of Participation in the Paycheck Protection
Program (PPP), the PPP Liquidity Facility, and the Money Market Mutual Fund Liquidity Facility, June 22, 2020,
https://www.fdic.gov/news/financial-institution-letters/2020/fil20063.html.
85 OCC, Office of the Comptroller of the Currency Fees and Assessments: Amended Interim Calendar Year 2020 Fees
and Assessments Structure, August 7, 2020, https://www.occ.treas.gov/news-issuances/bulletins/2020/bulletin-2020-
73.html.
Congressional Research Service
24

Over the Line: Asset Thresholds in Bank Regulation

Potential Responses Needing Additional Regulator Authority from Congress
Certain regulatory thresholds were not included in the December 2020 rule, notably the CFPB
supervisory authority for consumer compliance for banks with more than $10 bil ion in assets.
The rulemaking did not specify a reason for the omissions. In any case, if Congress determined
that a December 31, 2019, asset measurement should temporarily be more widely applied, it
could mandate that in legislation. In addition, regulators did not provide temporary relief to banks
with over $10 bil ion in assets in this rule (although larger banks did benefit from the PPP
exemptions from capital requirements).
Bank regulators may need additional authority from Congress to address the regulatory
implications of COVID-19 asset growth for other purposes, however. For example, under the
Collins Amendment, BHCs are required to meet the same risk-weighted and leverage capital
ratios that depositories must meet, and those requirements cannot be less than they were at the
enactment date of the Dodd-Frank Act.86 According to Vice Chair of the Federal Reserve Randal
Quarles, the leverage ratio requirements present a problem under the conditions brought about by
the pandemic.87
Although risk-weights on account balances held at the Federal Reserve and Treasuries are set at
0% and thus do not require banks to hold capital against them, leverage ratios treat al assets the
same. As a result, banks must hold capital against even these safe assets, and as banks’ reserve
account balances grow, al else equal, their leverage ratios fal . Due at least in part to these
concerns, Quarles expressed in a letter to then-Senate Banking Committee Chairman Mike Crapo
that the Federal Reserve may want to temporarily provide banks with flexibility in meeting
leverage ratio requirements but that a legislative modification to the Collins Amendment was
needed to do so.88 (The Federal Reserve determined that it had the authority to exempt these
assets from the supplementary leverage ratio, which applies only to the largest banks, but not the
leverage ratio and granted banks that relief until March 31, 2021.) Certain observers may argue
for the importance of having a strong leverage ratio requirement to complement the risk-weighted
ratios and that the purpose of the leverage ratio is to measure the amount of bank capital against
assets regardless of risk. In their view, exempting safe assets undermines the usefulness of the
leverage ratio requirement.89
Industry Consolidation Trends
In recent decades the banking industry has consolidated significantly. In general, the number of
smal institutions and the share of industry assets those institutions held have steadily declined,

86 12 U.S.C. §5371.
87 Randal Quarles, Federal Reserve Vice Chair for Supervision, letter to Senator Mike Crapo, April 22, 2020,
https://www.banking.senate.gov/imo/media/doc/Fed%20Response%20to%20Crapo%204.8.20%20Letter.pdf .
88 Quarles, letter to Crapo.
During consideration of a coronavirus relief package in August 2020, Senator Crapo introduced to S.Amdt. 2499 to S.
178. T he amendment would have allowed bank regulators to “ make such temporary adjustments to the method of
calculating the generally applicable leverage capital requirements … as the appropriate Federal banking agency
determines necessary to address or avoid a severe economic stress situation.” Any adjustments made under this
authority would have lasted no longer than 12 months. See U.S. Senate, Congressional Record, daily edition, August 4,
2020, pp. S4856-S4857. Neither the amendment nor the final bill were ultimately passed by the Senate.
89 Former Federal Reserve Governor Daniel K. T arullo, “Departing T houghts,” remarks at the Woodrow Wilson
School, Princeton University, April 4, 2017, pp. 11 -13, https://www.federalreserve.gov/newsevents/speech/files/
tarullo20170404a.pdf.
Congressional Research Service
25

Over the Line: Asset Thresholds in Bank Regulation

whereas the number of large banks and their share of industry assets have grown.90 For example,
as of December 31, 2020, there were 13 insured depository institutions with more than $250
bil ion in assets that together accounted for more than 56% of industry assets. That is an increase
from the three institutions over $250 bil ion that accounted for 18% of industry assets 20 years
earlier. Over that same period, the number of institutions with less than $1 bil ion fel from 9,362
to 4,074, and their share of industry assets fel from 17% to 5%.91 Observers disagree over the
degree to which different causes have driven this industry consolidation.92 Regardless of the
causes, the changing industry structure has implications for a framework using mostly static
thresholds.
Consolidation means that, over time, any relatively low asset thresholds provide regulatory
exemptions and relaxed regulations for fewer and fewer institutions representing a smal er share
of the industry. Meanwhile, moderate and higher thresholds are increasingly applying additional
regulations to more banks and a larger share of the industry. This development is not necessarily
problematic if those thresholds are stil balancing benefits and costs wel . However, policymakers
set many existing thresholds to apply to an industry that had a fundamental y different structure
than it has today.
The Effects of Inflation on Thresholds Over Time
Another issue to be considered regarding banks exceeding fixed thresholds over time is the effect
of natural growth in the nominal value of assets due to inflation, the growth of the economy, and
the growth of the financial industry. A few thresholds are regularly adjusted for inflation. For
example, banks under an inflation-adjusted threshold are exempt from reporting requirements
under the Home Mortgage Disclosure Act,93 and banks below certain inflation-adjusted thresholds
are classified as small banks and intermediate small banks, making them eligible for tailored
evaluation frameworks under the CRA.94 However, many thresholds are not indexed, and as a
result, fixed thresholds are continual y declining over time in terms of real asset value or
institution size relative to the economy or the financial industry. If Congress decided thresholds
should be raised to match inflation year to year, it could index them to some measure of inflation.
Alternatively, it could index thresholds to the increase in nominal GDP or industry assets.

90 For more information, see CRS Report R43999, An Analysis of the Regulatory Burden on Small Banks, by Sean M.
Hoskins and Marc Labonte; and the “ Community Banks” section of CRS Report R44855, Banking Policy Issues in the
115th Congress, by David W. Perkins.
91 FDIC, Quarterly Banking Profile data, accessed November 16, 2017, https://www.fdic.gov/bank/analytical/qbp/
timeseries/ratios-by-asset-size-group.xls.
92 T he preface to a 2007 interagency study on regulatory burden stated that “it is difficult to accurately measure the
impact regulatory burden has played in industry consolidation.” FFIEC, Joint Report to Congress: EGRPRA, July 31,
2007, p. 3, http://egrpra.ffiec.gov/docs/egrpra-joint-report.pdf. A 2014 study found that at least 75% of the decline of
new bank charters could be attributed to macroeconomic conditions. See Robert M. Adams and Jacob P. Gramlich,
Where Are All the New Banks? The Role of Regulatory Burden in New Charter Creation, Federal Reserve Board,
December 16, 2014, http://www.federalreserve.gov/econresdata/feds/2014/files/2014113pap.pdf. For additional
information on possible causes, see CRS Report R46699, Banking Policy Issues in the 117th Congress, coordinated by
David W. Perkins.
93 12 U.S.C. §2808(b). Currently set at $48 million. CFPB, “Home Mortgage Disclosure (Regulation C) Adjustment to
Asset-Size Exemption T hreshold,” 85 Federal Register 83409-83411, December 22, 2020.
94 See 12 C.F.R. §§228.12(u)(2), 345.12(u)(2). Currently, small banks are banks with less than $1.322 billion of assets,
and intermediate small banks are those below that threshold with at least $330 million in assets. Federal Reserve and
FDIC, “Community Reinvestment Act Regulations,” 85 Federal Register 83747-83749, December 23, 2020.
Congressional Research Service
26

Over the Line: Asset Thresholds in Bank Regulation

Author Information

Marc Labonte
David W. Perkins
Specialist in Macroeconomic Policy
Specialist in Macroeconomic Policy

Acknowledgments
This report uses some material from an earlier CRS report written by Sean Hoskins, formerly of CRS, and
Marc Labonte.

Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan
shared staff to congressional committees and Members of Congress. It operates solely at the behest of and
under the direction of Congress. Information in a CRS Report should n ot be relied upon for purposes other
than public understanding of information that has been provided by CRS to Members of Congress in
connection with CRS’s institutional role. CRS Reports, as a work of the United States Government, are not
subject to copyright protection in the United States. Any CRS Report may be reproduced and distributed in
its entirety without permission from CRS. However, as a CRS Report may include copyrighted images or
material from a third party, you may need to obtain the permission of the copyright holder if you wish to
copy or otherwise use copyrighted material.

Congressional Research Service
R46779 · VERSION 7 · NEW
27