Speaking at a Chicago Fed conference on banking Tarullo said community banks, with less than
About 80 very large banks hold about a third of the U.S. commercial banking assets and if all came under pressure simultaneously, lending could contract and harm the economy, he said.
New bank regulations are aimed at avoiding that, but smaller community banks should be treated differently, Tarullo said.
In addition, Tarullo favored regulating some large financial firms that are not traditional banks because they could create vulnerability in the financial system under major stresses.
He described the regulatory system enacted after the 2008 financial crisis as a work in progress, both in the U.S. and in foreign markets. He applauded U.S. bank stress tests and said he hoped stringent tests would be adopted in other countries.
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