Fed Weighs Higher Bank Oversight Thresholds to Reflect Economic Growth

The US Federal Reserve is preparing a proposal to raise the asset thresholds that subject large banks to tougher supervision, according to four people familiar with the discussions. The plan would reindex the triggers to account for inflation and economic growth, potentially allowing some lenders to expand without facing the most stringent requirements.

Under current rules, stricter oversight begins at $100 billion in assets, escalates at $250 billion, and reaches its highest tier at $700 billion. Those levels were set in 2019 and, according to banks, have not kept pace with the economy, imposing costs that exceed the risks they pose. Crossing the $100 billion mark typically requires tens of millions of dollars annually for compliance staff, risk systems, stress testing, and regulatory reporting.

The Fed is considering lifting the top threshold to near $1 trillion and adjusting the lower tier to about $150 billion, the sources said. Three of them expect a formal proposal later this year. A Fed spokesperson declined to comment. In January, Vice Chair for Supervision Michelle Bowman said the central bank would examine reindexing, suggesting nominal GDP as a possible measure.

Lenders positioned just below the $700 billion line—such as U.S. Bancorp, Capital One, PNC Financial, and Truist—could gain room to grow without triggering the toughest oversight, including parts of forthcoming capital rules and daily reporting to supervisors. Western Alliance, Zions, and others could surpass $100 billion without incurring all current requirements, while Pinnacle Financial Partners and one or two peers between $100 billion and $150 billion might shed some obligations.

A U.S. Bancorp spokesperson said the economy has grown significantly over seven years and that updated rules would support lending capacity and competition. Other banks declined to comment or did not respond.

The effort is part of a broader push by the Trump administration to reform bank oversight, which officials say is constraining lending. Bowman is also revising capital rules and other supervisory policies. The changes could encourage consolidation among mid-size lenders that have hesitated to cross thresholds. Analysts at Truist noted that revised thresholds could reduce the downsides of growth and alter the cost-benefit calculus of acquisitions.

Banks with $50 billion to $700 billion in assets announced only 33 bank and thrift acquisitions over the past decade, with seven such deals last year, including Fifth Third's $10.9 billion purchase of Comerica, according to S&P Global Market Intelligence. James Stevens, a partner at Troutman Pepper Locke, said the shift could unlock M&A activity among mid-cap and regional banks that have been in a holding pattern, allowing boards to assess deals on merit rather than regulatory math. One industry executive said a higher $700 billion threshold would help larger lenders compete more effectively with the four biggest consumer banks.

Critics of consolidation argue it reduces competition and services while increasing systemic risk. The 2010 Dodd-Frank Act established the supervisory thresholds, which Congress softened in 2018. While some requirements, such as stress tests for banks in the $100 billion bucket and enhanced prudential standards above $250 billion, can only be changed by Congress, the law gave the Fed broad discretion to add capital planning, liquidity, and reporting requirements. The central bank also created the $700 billion category for large banks not deemed globally systemically important.

Banks have long argued the thresholds are arbitrary and distort business decisions by encouraging them to stay below certain levels. Reindexing using nominal GDP would incorporate inflation and growth, potentially pushing the top threshold to around $960 billion and the lower Fed requirements to roughly $150 billion. Democrats contend that Congress already diluted the rules in 2018 and that asset thresholds, though imperfect, remain a simple way to calibrate oversight.