Section 1025 of Dodd-Frank gives the CFPB exclusive authority to examine insured banks, savings associations, and credit unions with total assets of more than $10 billion and their affiliates (“Large Institutions”) for compliance with federal consumer financial laws and primary authority to enforce those laws. For smaller institutions ($10 billion or less) and their affiliates, Section 1026 keeps examination and enforcement authority with the prudential regulators—the OCC, the Fed, the FDIC, and the NCUA.

These four regulators and the CFPB have now issued a joint statement  explaining how they will measure total assets for purposes of these two provisions using quarterly reports of condition or “call reports.” While the language of the statement is not entirely clear, it seems that the regulators have chosen call report data from June 30, 2011 as the bright line for determining whether or not an institution qualifies as a Large Institution. Initially, a Large Institution will be one that reported more than $10 billion in total assets on its June 30, 2011 call report. After that, an institution will not become a Large Institution unless it has reported more than $10 billion in total assets for four consecutive quarters. Once considered to be a Large Institution, an institution will cease being a Large Institution if it reported $10 billion or less in assets for four consecutive quarters.

The statement also explains that, in the case of a merger or acquisition, the same four consecutive call report test will be applied to each of the constituent entities to ascertain whether the resulting institution is or is not a Large Institution. The regulators chose this call report method because they believe that more frequent periodic determinations of asset size (which could result in sudden shifts in an institution’s primary consumer regulator) would create uncertainty and be unduly disruptive.

We think the approach chosen by the regulators generally appears sensible. However, the apparent decision to use June 30, 2011 call report data to initially identify who is a Large Institution could produce an odd result if an institution that never had more than $10 billion in total assets saw a spike in its assets to more than $10 billion as of June 30. Such an institution would become subject to the CFPB’s examination and enforcement authority and would only revert to the jurisdiction of its traditional prudential regulator when its call reports for four consecutive quarters showed total assets of $10 billion or less.