“Tough new regulatory requirements for regional banks exceeding $50 billion in assets are costly, but much of that toll would remain even if Congress changed the asset threshold, according to a provocative new paper.

“The paper by Federal Financial Analytics said the heightened rules could cost a combined $2 billion annually for 20 regional players included in the report. Tougher standards for those institutions could also reduce lending by $14 billion to $20 billion over a five-year period and push more business to the unregulated shadow banking sector, the report said.”

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“But Dennis Kelleher, the president of Better Markets, said that is not a reason to raise the threshold. Instead, policymakers should focus on ensuring all financial players follow the same rules.

“There should be no such thing as an unregulated shadow banking system,” Kelleher said. “There should be a regulated finance system where banks and nonbanks are all regulated appropriately tailored to their risk.”

“Even if there are additional costs faced by regional banks from the $50 billion threshold, he said, those pale in comparison to what would happen if there is another financial crisis.

“There is no question that there are going to be costs associated with regulation,” he said. “But would you rather pay a little more now for the price of regulation or lots later in a financial crash? Because those are the only two choices.”

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Read the full American Banker article by Rob Blackwell here.