Banks differ from each other across numerous aspects of their business models, including balance sheet size, breadth of products and services offered, funding sources, and risk appetite, among others. Policymakers and experts generally agree that bank regulation should be tailored to account for these differences between institutions. As result, regulations are generally applied to banks based on meeting or not meeting some criteria. These criteria are established on an ad hoc basis, and are often (but not always) based on whether the bank is above or below a certain asset size threshold, such as $1 billion, $10 billion, or $50 billion in total assets. To what degree the application of regulation should vary and how those variations should be designed and implemented are debated issues. These issues have been prominent in recent years at least in part because legislative and regulatory responses to the financial crisis—such as the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank; P.L. 111-203 ) and the international agreement known as Basel III Accord —have amended or introduced a number of regulations that include tailoring criteria. Bank regulation aims to achieve certain potential benefits (e.g., better-managed risks, increased consumer protection, greater systemic stability) that justify potential costs of the regulation (e.g., reduced credit availability for certain consumers and businesses, slower economic growth over some period of time). The size of the realized benefits and costs of a regulation for any individual bank or group of banks are likely to depend in part on certain characteristics of that bank or group, such as willingness to take on risk, systemic importance, and ability to absorb compliance costs. Thus, appropriately fitting regulation to banks of different types is an important component of designing effective and efficient regulation. For illustrative purposes, consider the following simplified example. A regulation aimed at reducing systemic risk may produce greater benefit when applied to a very large, complex, globally active and interconnected institution than when applied to a single-branch institution making residential and farm loans in a rural community. In addition, the large institution may have more resources to comply with the regulation. Achieving appropriate tailoring for thousands of diverse banks is more difficult than laid out in the stylized example above. Determining which banks should be regulated similarly to each other, differently from others, and how regulation should differ between groups varies from regulation to regulation. For example, the Dodd-Frank mandates enhanced prudential regulation for bank holding companies (BHCs) with more than $50 billion in assets and assigns primary consumer compliance supervision of banks with more than $10 billion to the Consumer Financial Protection Bureau (CFPB). U.S. regulators have created classifications—largely in adherence to Basel III—designating some large BHCs as advanced approaches banks and globally systemically important banks , subjecting them to stricter capital and liquidity requirements. Classifications are also in place for small banks. For example, certain banks with less than $1 billion are subject to less frequent examinations, and BHCs below that threshold are exempt from certain requirements involving mergers and capital ratios. In addition, a popular, but unofficial, terminology—which includes terms such as community bank and Wall Street —is used during debate related to bank regulation. An exhaustive examination of all classifications and thresholds and dimensions across which these various types of banks differ is beyond the scope of this report. Instead, this report examines selected classifications of banks, briefly discusses selected legislation that would amend the existing tailoring system, and analyzes three selected characteristics (size, business activities, and reliance on capital funding) across which banking organizations may measurably differ. A potential source of confusion in the debate over tailored regulation is the diversity of both popular terminology describing banks and official statutory and regulatory classifications. Many people conceptually understand ways in which banks differ, and terms that are not specifically or universally defined have developed to describe those popularly understood concepts. Meanwhile, policymakers and regulators must develop specific classification criteria for the practical application of regulations. In addition, some observers assert the criteria used in the current regulatory classifications could be improved. This section examines three types of bank classifications: 1. Unofficial classifications described by popular but often subjective terminology, 2. Official classifications of banks officially defined in statute or regulation, and 3. Proposed classifications based on alternative criteria from those used in current statute or regulation. Many terms are used to classify banks according to qualitative descriptions of the business models they employ. The utility of these terms is that they refer to widely held, intuitive understanding of the differences between bank types and appropriate levels of regulation for them. An examination of these terms can illustrate which characteristics observers believe should be considered when calibrating regulations. However, these terms can be problematic because they can be interpreted differently and reaching consensus on exactly which banks fall into each category is difficult. The terms c ommunity bank or Main Street bank typically refer to a bank that uses a simple deposit-taking and loan-making business model to meet the credit needs of a certain community. Although these banks may typically be small in terms of asset size, conceptually that does not necessarily have to be a determining factor. Nevertheless, community banks are often identified as such based on their small asset size. Complicating the identification of community banks using only size as a criterion is that no consensus exists over what the specific size threshold should be. In addition, many have observed that most small banks are generally different from large banks in a variety of ways besides asset size. For example, the Federal Deposit Insurance Corporation, for research purposes, identifies community banks by assessing certain metrics related to asset size, balance sheet characteristics, and geographic footprint. Under this definition, six banks with more than $10 billion in assets and one with almost $41 billion in assets were classified as community banks. Community banks are likely to be more concentrated in core commercial bank businesses of making loans and taking deposits and less involved in other activities such as securities trading or holding derivatives. Community banks also tend to operate within a smaller geographic area. These banks are generally more likely to practice relationship lending wherein loan officers and other bank employees have a longer-standing and perhaps more personal relationship with borrowers. Due in part to these characteristics, proponents of community banks assert that these banks are particularly important credit sources to local communities and otherwise underserved groups, as big banks may be unwilling to meet the credit needs of a small market of which they have little knowledge. Finally, relative to large banks, small banks are likely to have fewer employees, fewer resources to dedicate to regulatory compliance, and are less likely to individually pose a systemic risk to the broader financial system. For more information on the regulation of small banks, see CRS Report R43999, An Analysis of the Regulatory Burden on Small Banks , by Sean M. Hoskins and Marc Labonte. Wall Street bank is a term for a very large, very complex bank that is involved in many business lines outside of what is viewed as the traditional commercial bank activities of making loans and taking deposits. Such a bank could have hundreds of billions or trillions of dollars' worth of assets and its corporate structure could involve hundreds or thousands of separate subsidiaries under a parent bank holding company (BHC). Although at least one of these subsidiaries must be a chartered bank, many others could be nonbanks, such as broker-dealers, asset managers, and insurance brokers or agents. Wall Street banks may be internationally active and have a global presence. The term Wall Street bank comes from the prominent role many of these institutions play in underwriting and trading securities, activities that commonly take place on Wall Street in New York City. However, an institution of the aforementioned size and complexity may not necessarily be headquartered or even active on the actual Wall Street. Too Big To Fail (TBTF) bank is another term that refers to large, complex institutions, and refers to banks that meet a specific criterion that is not directly observable (or at least not directly observable until the government takes actions to save it from default). A bank is said to be TBTF when policymakers judge that its failure would cause such serious disruptions to the financial system that the resulting economic and social outcomes would be unacceptable. To avoid these outcomes, the government would be compelled to save the institution from failure, perhaps by directly giving it funding. Characteristics that could make an institution so important to the functioning of the financial system include its size, interconnectedness, complexity, or central role in a certain market or sector. The belief among market participants that the government will protect a certain bank or groups of banks could lead to moral hazard , wherein market participants do not adequately assess or monitor risk because they feel protected from potential losses. Moral hazard can result in excessive risk taking by the bank, lax risk monitoring by shareholders and creditors, and unfair funding advantages. In addition, government "bailouts" expose taxpayers to potential losses. Whether the policy reforms enacted by Dodd-Frank and Basel III effectively addressed these problems is a matter of debate. For more information on the TBTF issues, see CRS Report R42150, Systemically Important or "Too Big to Fail" Financial Institutions , by Marc Labonte. The terms r egional bank and m id- s ize bank generally refer to banks that do not fit neatly into a "very large, complex, and systemically important" or "small and simple" dichotomy. The set of banks to which the terms are referring can vary widely. Often, the terms describe a bank that has a simple business model that focuses on taking deposits and making loans, but has a large amount of assets and services a certain region of the country. Other times, the terms mean a bank that is significantly larger and more complex than the thousands of community banks but nevertheless its failure would not pose a risk to systemic stability.