TAILOR Act of 2025
- Sponsor
- Sen. Rounds, Mike [R-SD]
- Committees
- Banking, Housing, and Urban Affairs Committee (primary)
- Last action
- Feb 5, 2025
Bottom line
The TAILOR Act aims to reduce regulatory burdens on smaller, less complex financial institutions by requiring federal regulators to customize rules based on an institution's risk profile and business model.
What it actually does
This bill mandates that Federal financial institutions regulatory agencies consider the risk profiles and business models of institutions when issuing new regulations, requiring them to tailor rules to limit regulatory impact on lower-risk institutions. It also requires a review of existing regulations from the past seven years to apply this tailoring principle, and mandates reduced reporting for banks eligible for the Community Bank Leverage Ratio.
Proponents argue
Proponents argue that current "one-size-fits-all" regulations disproportionately burden community banks and credit unions, hindering their ability to serve local communities and compete with larger institutions. They contend that tailoring regulations based on risk will free up resources for lending and customer service without compromising financial stability.
Opponents contend
Opponents may argue that broad regulatory tailoring could create loopholes or reduce oversight, potentially increasing systemic risk or consumer vulnerability, especially if "low operation risk" is not rigorously defined or if the tailoring process is exploited. They might also express concern that a look-back review could weaken critical post-crisis safeguards.
The bill is short and its core provisions are clearly stated, making it accessible for a quick but informed read.
Section 2(b)
Mandate for Risk-Based Regulatory Tailoring
This provision requires all Federal financial institutions regulatory agencies, when issuing new rules, to consider the specific risk profiles and business models of different types of institutions. They must then tailor these regulations to minimize the burden (cost, human resources) on institutions, particularly those with lower risk profiles, ensuring the rules are appropriate for the risks involved.
Supporters argue
Supporters contend this provision will alleviate the disproportionate regulatory burden on smaller financial institutions, allowing them to better serve their local communities and foster economic growth without compromising financial stability, as tailoring is explicitly linked to risk profiles.
Critics contend
Critics might argue that defining and consistently applying "risk profile" and "business model" across diverse institutions could be challenging and lead to inconsistent application or regulatory arbitrage. They may also worry that any reduction in regulatory oversight, even for "low-risk" institutions, could create vulnerabilities.
Tradeoffs
The tension lies between reducing compliance costs for smaller institutions and maintaining robust oversight to prevent systemic risk or consumer harm. It also balances the desire for regulatory simplicity with the need for nuanced, risk-sensitive rules.
Section 2(c)
Mandated Factors for Regulatory Tailoring
This section specifies three key factors that regulatory agencies must consider when tailoring regulations: the cumulative impact of all regulations on institutions' ability to serve customers and local markets, how third-party service providers might undermine tailoring efforts, and the original statutory intent and policy objectives behind the regulatory action.
Section 2(f)
Review and Revision of Recent Regulations
This provision mandates that each Federal financial institutions regulatory agency review all final regulations issued in the seven years prior to the bill's introduction. The agencies must then apply the new tailoring requirements (from Sec. 2(b) and (c)) to these existing regulations and revise them as appropriate within three years of the bill's enactment.
Section 3
Reduced Reporting for Community Bank Leverage Ratio Eligible Banks
This section requires the appropriate Federal banking agencies to create regulations that establish a reduced reporting requirement for all banks that are eligible for the Community Bank Leverage Ratio. This reduced reporting would apply specifically to the first and third quarterly "report of condition" (Call Reports) each year.
Section 4
Congressional Report on Modernizing Bank Supervision
This section mandates that the appropriate Federal banking agencies, in consultation with State bank supervisors, submit a report to Congress within 18 months. The report must detail the modernization of bank supervision, covering factors such as changing bank business models, examiner training, supervisory structure, communication, use of supervisory technology, factors unique to community banks, and necessary statutory changes.
Requires Federal financial institutions regulatory agencies to review all regulations issued in final form pursuant to statutes enacted during the period beginning 7 years before the bill's introduction date and ending on the date of enactment.
Section 2(f)(1)(A)
Why it matters:This is standard legislative practice for defining a specific timeframe for a retroactive application. It's precise but requires careful reading to grasp the exact scope.
Case for: Supporters would argue that this look-back period ensures that regulations enacted in the wake of the 2008 financial crisis, which may have been overly broad, can be re-evaluated and tailored to current risk profiles, providing necessary relief to institutions that were not the target of those initial broad regulations.
Case against: Opponents might contend that a 7-year look-back could encompass significant post-crisis reforms (e.g., aspects of Dodd-Frank) and that re-evaluating these under a tailoring mandate could weaken critical safeguards put in place to prevent future financial instability.
Estimated impact: Potentially significant, as it could lead to the revision of numerous regulations impacting a wide range of financial institutions, particularly those enacted in the post-2008 regulatory environment.