NEW YORK/WASHINGTON, D.C.: Some of the largest U.S. banks could gain more room to expand without facing additional regulatory requirements under a Federal Reserve plan to raise the asset thresholds that determine how closely lenders are supervised, four people familiar with the matter said.

The central bank is working on changes that would account for inflation and economic growth when determining which banks face stricter stress-testing, liquidity, capital and reporting requirements. Three of the people said they expect the Fed to propose the changes later this year.

Under current rules, regulatory requirements become more stringent when a bank reaches US$100 billion in assets, with further thresholds at $250 billion and $700 billion.

The Fed is considering moving the highest threshold closer to $1 trillion and raising the threshold for some additional requirements currently triggered at $100 billion to about $150 billion, the people said.

Reindexing the thresholds using nominal gross domestic product could put the highest threshold at around $960 billion.

U.S. Bancorp, Capital One, PNC Financial and Truist are among the lenders closest to the $700 billion threshold that could gain more room to grow without becoming subject to some of the Fed's toughest requirements.

Western Alliance, Zions and other banks could expand beyond $100 billion without facing all the requirements currently applied at that level. Pinnacle Financial Partners and one or two other lenders with assets between $100 billion and $150 billion could shed some requirements.

A Fed spokesperson declined to comment. Fed Vice Chair for Supervision Michelle Bowman said in January that the central bank would consider reindexing the thresholds and suggested using nominal GDP.

"The US economy has grown significantly over the past seven years, and it makes sense to have rules for all banks that will help consumers and small businesses through increased bank lending capacity and more competition," a U.S. Bancorp spokesperson said.

The other banks either declined to comment or did not respond to requests for comment.

The proposed changes could encourage consolidation among mid-sized lenders that have avoided acquisitions because of concerns about crossing regulatory thresholds, the people said.

"Revised thresholds can reduce downsides of growth and change relative costs/benefits of acquisitions," Truist analysts wrote in response to the Reuters report.

Banks with assets of $50 billion to $700 billion announced 33 bank and thrift acquisitions over the past decade, according to S&P Global Market Intelligence. Seven such deals were announced last year, including Fifth Third's $10.9 billion acquisition of Comerica.

"We would expect this to unlock M&A activity among mid-cap and regional banks that have been in a holding pattern," said James Stevens, a partner at law firm Troutman Pepper Locke. He said bank boards could assess deals on merit "rather than on the regulatory math."

Banks have argued that the thresholds, established in 2019, have not kept pace with economic growth and can discourage expansion. Critics of bank consolidation argue that mergers can reduce competition and services while increasing systemic risks.

Some supervisory requirements are mandated by law and can be changed only by Congress. Others, including additional capital planning, liquidity, and reporting requirements, fall within the Fed's discretion.

The plan forms part of a broader effort to revise bank oversight. Bowman is also overhauling capital rules and other aspects of the Fed's supervisory regime.