Recently proposed changes to how regulatory capital and liquidity is managed and reported at U.S. large regional banks continues the bifurcation of regulatory relief between Global Systemically Important Banks (GSIBs) and smaller peers, says Fitch Ratings. 

Generally, the proposed relaxation of regulatory and capital standards is a negative for creditors at U.S. large regional banks, especially the potential loss of the comparability of annual public stress tests. However Fitch does not anticipate ratings changes directly as a result of the proposed changes, with the ultimate ratings impact dependent on how banks respond to, and operate under, more relaxed regulatory requirements. 

"We expect banks to most likely proceed with caution in decommissioning stress testing and related elements, such as resolution planning, especially given the potential for changes in the political and regulatory environment in the future. We expect highly-rated banks to continue to exercise disciplined capital and liquidity risk management," the analysts wrote.

The proposal responds to the recently enacted Economic Growth, Regulatory Relief, and Consumer Protection Act, which altered asset size thresholds under which U.S. regulators, including the Federal Reserve, Office of the Comptroller of the Currency and Federal Deposit Insurance Corporation, imposed enhanced prudential standards. The proposal would tailor regulatory standards and divide banks with more than $100 billion in assets, or $75 billion in foreign activity, into one of four categories. Key considerations include not only asset size but also include the amount of wholesale short-term funding, non-bank assets, off-balance-sheet exposure and the level of international activities.

Read more about the changes here.