ABA to Fed: Regulatory assessments may not be best method to cover expenses

200px-American_Bankers_Association_LogoIn a letter to the Federal Reserve, the American Bankers Association said the central bank’s proposal to collect supervisory and regulatory assessments from large financial firms may not be “the most effective way” to cover regulatory expenses.

Section 318 of Dodd-Frank stipulates that the Federal Reserve collect an assessment from bank holding companies and saving and loan holding companies with assets of $50 billion or more, as well as designated nonbank holding companies, to cover the regulator’s estimated regulatory and supervisory expenses.

The ABA said regulation and supervision “should, when appropriate, be tailored to reflect the different risk profiles of financial institutions, taking into account, among other things, business models, product offerings, complexity and where relevant, size.”

“Notwithstanding its relative simplicity and transparency, size alone may therefore not be the most effective way to allocate the cost associated with supervision and regulation of Covered Companies,” the ABA said. “Moreover, size-based formulas also result in significant cliff effects. For example, a BHC or SLHC just over the $50 billion threshold is charged for all of the Board’s regulation and supervision activities with respect to it, whereas an institution just below the threshold is not charged at all.”

The ABA also said the Fed’s proposal does not detail its activities and costs related to supervision and regulation, saying it is difficult “to evaluate fully and provide comment on the reasonableness of the Board’s methodology or the Assessment Basis.”

Additionally, the ABA urged the Fed not to retroactively assess firms and to notify designated firms by June 30 of the calendar year prior to the assessment period.

“[W]e ask that the Board continue to evolve its assessment process to ensure that it is transparent and fair both in the short and long term,” the ABA said.

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