Under the 2010 Dodd-Frank Act, the Fed is required to more closely monitor and regulate any institution with more than $50 billion in assets. This was intended to reduce the systemic risk that these large institutions posed to the U.S. financially system, according to Fierce Finance.
In a letter sent by industry groups last week, however, the groups charge that the Fed is focused on breaking up the largest institutions, saying that the regulator “has set a new course” to use new regulatory powers “to achieve indirectly what it was not authorized to address directly—that is, precipitate a dramatic reduction in the size of large banks through size-based regulation,” Fierce Finance reports.
The banks represented by the groups, including Bank of America, JPMorgan Chase, Wells Fargo, Citibank and Goldman Sachs, have also objected to a Fed proposal that would limit credit exposure to 10 percent on counter-party risk.
“The Federal Reserve has provided no basis to determine that imposing the dramatically lower and arbitrary 10 percent credit limit on certain major covered companies would even help mitigate risks to the U.S. financial stability, much less be necessary,” the letter said, Bloomberg reports.
The groups also charge that the Fed failed to explain the economic models used in the recent stress tests and did not reveal the assumptions used throughout the tests.
“It is simply unfair to ask a bank to pass a test — and manage towards the standards of that test — if the parameters are largely unknown or largely opaque,” the letter said, according to Bloomberg.