Federal Reserve Must Raise 'Small Bank' Asset Limit to $25 Billion, Easing Rules for Mid-Sized Lenders

This legislation, the “Small Bank Holding Company Relief Act,” is essentially a targeted rewrite of the Federal Reserve’s rulebook for mid-sized financial institutions. It mandates that the Federal Reserve must update its policy within 180 days to significantly raise the asset threshold for what counts as a “small” bank holding company or savings and loan holding company. Right now, smaller banks get a break on complex regulatory reporting and oversight; this bill raises the qualifying limit for that break all the way up to $25 billion in consolidated assets.

The New Definition of 'Small'

What does this mean in plain English? If you're a bank holding company with, say, $15 billion in assets, you are currently subject to a certain level of regulatory scrutiny and compliance costs. Under this new rule, you would be reclassified as “small” by the Fed’s policy statement (specifically Appendix C to Part 225 of Title 12). This reclassification means those institutions—now up to the $25 billion mark—will qualify for a simplified regulatory framework. Think of it as moving from the complex tax forms to the simplified short form, but for bank oversight.

Relief for the Mid-Market Lenders

The primary effect here is regulatory relief. Mid-sized banks often argue that the complex rules designed for the massive Wall Street players (think the $100+ billion crowd) are unnecessarily burdensome for them, diverting resources from lending and community services toward compliance departments. By raising the threshold to $25 billion, the bill aims to cut down on compliance costs and administrative headaches for a large segment of the banking industry. For instance, a regional bank that focuses on agricultural loans or small business financing could free up capital previously spent on navigating complex reporting requirements.

The Trade-Off: Less Oversight for Bigger Banks

While the goal is to help mid-sized institutions focus on their core business, there is a trade-off. This change means that a bank holding company with $24 billion in assets will now face less intensive regulatory scrutiny than it did before. The policy statement being changed relates to capital planning, stress testing, and other oversight mechanisms. The concern here is that as the definition of “small” gets bigger, the institutions operating under lighter rules also get bigger. While $25 billion is still far from the size that poses an immediate threat to the entire financial system, reducing oversight on institutions of this size, particularly during economic stress, is something the public ultimately bears the risk for. The Fed is now tasked with implementing this change, balancing the mandated relief with maintaining financial stability for this newly expanded category of 'small' banks.