By Andrew Ackerman
WASHINGTON -- The Federal Reserve is advancing some of the most significant rollbacks of bank rules since President Trump took office, setting up a new way of deciding which large banks are hit with its toughest regulations.
The Fed on Thursday was set to complete rules aimed at easing liquidity and capital rules for large U.S. banks, signing off on a plan in an expected Thursday vote that may lower regulatory costs for regional U.S. lenders with less than $700 billion in assets.
The Fed's new rules would divide large U.S. banks into four categories based on their sizes and other risk factors, largely following the structure of a proposal from last October. Regional lenders would be either entirely free from certain capital and liquidity requirements or see those requirements reduced.
Randal Quarles, the Fed's pointman on financial regulation, said the rules aim to set a framework "that more closely ties regulatory requirements to underlying risks, in a way that does not compromise the strong resiliency gains we have made since the financial crisis."
For foreign banks, the picture was more mixed, with some facing heightened requirements. On one key issue, revolving around the treatment of foreign banks' branches in the U.S., the Fed put off a decision, saying it needed more time to consult with overseas counterparts.
"We will be focusing our attention in the coming months on the question of branch liquidity requirements," Mr. Quarles said.
Overall, the Fed staff estimated that the final rules would lower capital requirements modestly by about 0.6% of total risk-weighted assets, or about $11.5 billion.
The Fed also on Thursday plans to ease a requirement that large banks plan annually for their own demise, completing a measure on what are known as living wills that it formally floated in April.
The collective changes represent a significant step to soften the impact of the 2010 Dodd-Frank law, signed to ward off another financial crisis. Another law, signed by Mr. Trump last year, eased restrictions for banks with less than $250 billion in assets and served as an impetus for the changes.
Under the eased requirements for living wills, the largest U.S. banks, including Bank of America Corp., JPMorgan Chase & Co. and Citigroup, would produce full living-will plans every four years rather than every year.
Every two years banks would file pared-down versions of the plans, addressing capital and liquidity, core parts of their wind-down strategies and any major shifts in their operations. Fed officials minimized the distinction between the full- and paired-back living wills and said the change largely conforms to existing practice for the biggest banks.
Banks' living wills essentially explain how they would wind down their operations. Most envision the parent company filing for bankruptcy, selling what can be sold -- typically money-management arms and retail brokerages -- and winding down trading operations over time.
If regulators reject a bank's plan, the bank can be forced to hold additional capital or limit its growth.
Regulators and banks have over the years struggled with the living-will process. Regulators at times didn't provide feedback to banks in time to inform their subsequent living-will plans, delaying submission deadlines.
The changes have divided the Fed, with Trump-appointed regulators and an official nominated by President Obama taking opposite sides.
Supporters say the efforts would cut the regulatory burden while maintaining the most stringent requirements for firms that pose the greatest risks. "All of our rules keep the toughest requirements on the largest and most complex firms, because they pose the greatest risks to the financial system and our economy," Fed Chairman Jerome Powell said in a statement.
Fed governor Lael Brainard has dissented. The Obama appointee said the policy proposals under consideration "weaken core safeguards against the vulnerabilities that caused so much damage in the crisis."
Write to Andrew Ackerman at firstname.lastname@example.org