Lockhart says lighter banking regulation appropriate in improved economy

ATLANTA (Reuters) - Outgoing Atlanta Federal Reserve president Dennis Lockhart put a plug in for looser bank regulations on Thursday, saying debate over ways to change the Dodd-Frank financial reform laws were appropriate given the economy's strength and what he regards as improved bank management.

The regulatory "pendulum," he said, had likely swung too far in the aftermath of the 2007 to 2009 financial crisis. Community and regional banks in particular should be treated with a lighter touch based on each institution's risk profile rather than one-size-fits-all rules, he said.

He argued that only the very largest institutions, with perhaps half a trillion dollars or more in assets, should be subject to the fullest sweep of bank regulation because of their importance in the system. Such a cutoff would leave only four U.S. giants including J.P. Morgan, Wells Fargo (NYSE:WFC) & Co, Bank of America Corp (NYSE:BAC) and Citigroup Inc (NYSE:C) facing the toughest oversight. More regional players could be subject to a more liberal set of rules.

"The regulatory posture should be attentive to its context and the context now is far far better, and it is appropriate to make some adjustments...I do not think it is a mistake to see the regulatory pendulum swing," that would lower regulatory costs and loosen the rules for some banks, Lockhart said in what are his final scheduled remarks before retiring next week.

President Donald Trump's administration is considering various changes to the Dodd Frank law that tightened bank supervision following the financial crisis. Fed policymakers view the process with some concern about recreating the conditions that led to the crisis in the first place.

Lockhart said he did think there was a risk if the administration tries to fulfill the "broad sweeping promises" of a campaign in which Trump pledged to repeal all manner of regulation, including the Affordable Care Act for healthcare.

But Lockhart said the difficulty lawmakers face in simply repealing Obamacare may well be repeated in the case of Dodd Frank, and likely end with the core of the law left in place.

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"When you get into the phase of having to roll up your sleeves and really reengineer something that has been institutionalized, things get very complex and the tradeoffs get to be quite difficult."