Bills
| 3.23.22

Reducing the Frequency of Regulatory Exams for Healthy Small Banks (H.R. 1553)

Do you support or oppose this bill?

What is H.R. 1553?

(Updated October 21, 2019)

This bill would increase the number of small banks that are eligible for 18-month on-site examinations by the Federal Deposit Insurance Corporation (FDIC) by raising the asset size of eligible small banks from $500 million to $1 billion. As a result these banks would undergo two continuous exams over a three-year period, rather than three exams. These changes would only apply to banks that are considered well capitalized and not at risk of instability.


A small bank would also qualify for the 18-month review cycle if they they have less than $200 million in assets, as that limit would be raised from $100 million and the bank’s most recent examination found its composite condition to be good rather than outstanding.


Federal banking agencies would be given the authority to increase these asset ceilings beyond the $200 million to $1 billion range in the future if they find that greater asset size is consistent with the principles of safety and soundness.

Argument in favor

This bill would help healthy small banks by reducing the frequency of their on-site regulatory examinations to 18 months. Regulators would keep the ability to impose conduct frequent exams on an institution that needs it.

Argument opposed

All small banks need stringent federal examinations of their operations every 12 months. If that level of scrutiny impacts their business, they should hire more compliance workers to deal with the paperwork.

Impact

Banks that would qualify for the new on-site exams, the FDIC, and a federal banking agency.

Cost of H.R. 1553

The CBo estimates that this legislation may affect direct spending, but that any budgetary effects would be insignificant.

Additional Info

In-Depth: Sponsoring Rep. Scott Tipton (R-CO) cited concerns about the impact of regulatory exams occurring every 12 months on the ability of small banks to serve their customers as a reason for introducing his bill: “The most widespread concern that I’ve heard from small banks I’ve met with throughout Colorado, is that increased regulatory compliance burdens have taken vital resources away from running their business operations and providing services to consumers.”


In a letter of support for this bill, the Independent Community Bankers of America noted that offsite supervision of banks could continue, and that making on-site exams less frequent for the healthiest banks: “would actually increase safety and soundness by allowing examiners to focus their limited resources on the true sources of risk.”


The House FInancial Services Committee passed this legislation unanimously on a vote of 59-0.


Of Note: According to the Federal Reserve, the 550 largest banking corporations in the U.S. have an assets of $1 billion or larger, while there are about 1,230 banks ranging in size between $999 million and $300 million.

The FDIC reports that of the 5,472 banking firms in the U.S., there are 4,898 that have less than $1 billion in assets, which amounts to 89.5 percent.

Media:

Summary by Eric Revell
(Photo Credit: Flickr user Tony Webster)