Developments in Securities Regulation, Corporate Governance, Capital Markets, M&A and Other Topics of Interest. MORE

In testimony before a Senate committee, Federal Reserve Governor Daniel K. Tarullo suggested the threshold for the Volcker rule should be raised.  He noted the Volcker rule and the incentive compensation requirements of Section 956 of the Dodd-Frank Act are directed at concerns generally present only with larger institutions, but the Volcker rule by its terms applies to all banking organizations, and the incentive compensation provisions apply by their terms to all banking organizations with $1 billion or more in assets.   Governor Tarullo testified the threshold could be raised to $10 billion, noting that requiring smaller banks to comply is not worth whatever incremental prudential benefits that might be gained.

Governor Tarullo also discussed the $50 billion level established by Section 165 of the Dodd-Frank Act.  The import of this threshold is to require enhanced prudential standards and supervisory stress testing for banking organizations whose assets exceed that amount.  He noted the difficulty of customizing supervisory stress testing for banks under $70 billion.  Governor Tarullo stated the Fed derives some supervisory benefits from inclusion of these banks toward the lower end of the range in the supervisory stress tests.  However, he stated those benefits are relatively modest, and the Fed believes it could probably realize them through other supervisory means.


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