- Fed Vice Chair for Supervision Michelle Bowman and House Republicans are pushing to index bank regulatory asset thresholds to nominal GDP so triggers rise with growth and inflation.
- Analysts estimate indexing since 2018 would lift key cutoffs, such as $100B to ~$140–150B, $250B to ~$350–370B, and $700B to about $1T.
- Backers say this would make supervision more risk-sensitive and ease burdens on banks that cross fixed thresholds despite unchanged business models.
- Key uncertainties include which thresholds require legislation, how indexing would be designed, and whether Congress and regulators can implement reforms on a workable timeline.
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The article from Banking Dive reports that Fed Vice Chair for Supervision Michelle Bowman, speaking on January 7, 2026, proposes updating and indexing regulatory asset thresholds to nominal U.S. GDP, as opposed to fixed dollar values. She argues fixed metrics fail to account for growth and inflation, meaning banks might unintentionally cross thresholds; this change could make the system more resilient and avoid regulatory stress triggers arising purely from macroeconomic drift.
In parallel, Reps. French Hill and Andy Barr are introducing legislation—referred to as a community banking legislative package—that would implement similar indexing of asset-based regulatory thresholds, along with reforms to management components in examinations, stress testing standardization, and banning reputational risk in exams.
Analyst Vivek Juneja estimates the scale of changes: with GDP up ~49% since end of 2018, indexing would push the $100 billion threshold (Category IV banks) to ~$140–150 billion; $250 billion (Cat III) to ~$350–370 billion; and $700 billion (Cat II) to around $1 trillion.
This proposed shift aligns with frequent criticisms from banks that fixed thresholds distort behavior. For example, smaller banks face disproportionate burdens from thresholds around $500 million and $10 billion. Fed and Treasury officials discussed the need for relief from these thresholds at the community bank conference in late 2025.
However, several uncertainties persist. First, many thresholds—especially those in legislation—are set statutorily; regulatory agencies cannot unilaterally change them. Second, debates will likely focus on what additional metrics (beyond asset size) should inform thresholds: complexity, risk exposure, business model, etc. Third, indexing itself requires choosing base years and frequency, all of which can become political flashpoints. Finally, whether Congress will pass broad reforms or limited fixes is open given legislative calendar constraints.
Strategically, banks near current thresholds could see significant relief if indexing moves forward, changing business incentives. Large banks currently below Category crossings may benefit; community banks may avoid burdensome obligations. But banking institutions will also need to adapt, possibly investing in risk management, reporting transparency, and preparing for new regulatory categories. Regulatory agencies and Congress must work in tandem; misaligned statutory/regulatory change risks legal and operational challenges.
Supporting Notes
- In her Jan. 7, 2026 speech, Federal Reserve Vice Chair Bowman proposed indexing asset-based regulatory thresholds to nominal GDP to adjust for economic growth and inflation.
- Bowman questioned whether fixed thresholds—such as a $10 billion cutoff for community bank status or $100 billion for large banks—are appropriate regardless of risk profile or business model.
- Legislation by Reps. French Hill and Andy Barr would codify threshold indexing and include supervisory tailoring reforms, removal of “reputational risk” in exams, and other community bank relief measures.
- Vivek Juneja of J.P. Morgan Securities estimates indexing since end-2018 (GDP up ~49%) could raise the $100 billion threshold to $140–150 billion; $250 billion to ~$350–370 billion; $700 billion to ~$1 trillion.
- Community banks have flagged lower thresholds (e.g. $500 million, $10 billion) as burdensome; regulators—including Fed and Treasury officials—have acknowledged the need to reform them.
- The American Bankers Association and 52 other associations submitted joint comments supporting indexing of supervisory asset thresholds, noting that fixed thresholds have drifted out of alignment with policy intent.
- The Fed is also reviewing how it uses supervisory ratings, particularly CAMELS ratings, including simplifying the “management” factor and reviving nonbinding observations as part of oversight.