The Effect of Size Thresholds on Large Banks under the 2019 Tailoring Framework

Federal bank regulators finalized a tailoring framework for large-bank regulation in 2019. Among other provisions, the 2019 tailoring framework replaced a single category of large banks above $50 billion in total assets with four new categories for prudential regulation separated by size thresholds. Compared to the 2010 Dodd–Frank Act, the 2019 tailoring framework phased in large-bank regulations incrementally, adding a smaller set of changes at each threshold instead of all at once at $50 billion. This Economic Commentary analyzes the effect of this change in banking regulation during the 2016 through 2023 period. It finds that the new framework reduced bunching of banks just below the $50 billion in total assets threshold, which was removed from the regulation. At the same time, there is evidence of banks’ bunching just below $100 billion and $250 billion in total assets, two of the newly introduced thresholds under the new framework. Such bunching suggests that the 2019 tailoring framework imposed some regulatory costs on banks at each threshold as regulations became incrementally stricter, as intended by the framework. It does not, however, appear to have prevented bank growth outright. Indeed, the data show that multiple banks grew beyond their applicable size threshold after the new framework was implemented.