In a recent speech, Federal Reserve Governor Daniel Tarullo
proposed a "rethinking" of the aims of prudential
regulation for bank holding companies.1 With his
remarks, Governor Tarullo has sought to initiate a debate on how a
"more precise specification of prudential regulatory
aims" could provide a basis for recalibrating
regulation.2 This debate is especially timely and much
needed with respect to the Federal Reserve's new enhanced
prudential standards issued under Section 165 of the Dodd-Frank
Act, which have transformed the nature and scope of bank
regulation.
Yet as important as it is to reconsider the aims of
Section 165, it is equally important to reconsider its
means. Congress was very specific in prescribing how it
intended the Federal Reserve to implement Section 165's
enhanced prudential standards. Therefore, any debate on how to
recalibrate them must be grounded in an understanding of the
parameters imposed by the statute.
