In this report, we assess FRB Vice Chairman for Supervision Quarles’ last appearance before House FinServ in the 115th Congress at which most attention was clearly on the next Congress and how Rep. Waters (D-CA) will lead the panel in very new directions. Rep. Waters confirmed that the panel under her leadership will focus on what she described as the weakening of Dodd-Frank by regulators, but today highlighted aspects of the FRB’s supervisory report which she said show that the “megabanks” are too-large-to-manage. Although she did not raise this today, Rep. Waters has introduced legislation to require the banking agencies to revoke a GSIB’s charter if it fails to meet consumer-protection standards (see FSM Report GSIB11).  Rep. Waters pressed Mr. Quarles on the interagency (see FSM Report SIFI30) and FRB (see FSM Report SIFI31) tailoring proposals and proposed eSLR changes (see FSM Report LEVERAGE13) citing estimates that these substantially reduce capital and liquidity levels.  Mr. Quarles disagreed, saying that the proposals will not materially lower capital or liquidity.  Mr. Quarles stood by the GSIB surcharge (see FSM Report GSIB7) and promised FBO relief even as he said that IHC thresholds will not match those proposed for banking organizations in the Fed’s proposal.  Custody-bank relief from the leverage ratio (see FSM Report LEVERAGE14) will come ahead of finalizing the eSLR to prevent double-counting.  A proposal to tailor prudential requirements for FBOs is expected next year.

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