Dive Brief:

• Card issuer American Express expects to be subject to heightened bank requirements this year, as the company’s recent growth moves it closer to facing more federal regulation, based on assets, the company said in a Friday filing.
• The category Amex anticipates entering is for firms with more than $250 billion, but less than $700 billion in total consolidated assets, calculated based on a four-quarter trailing average, according to the New York-based company’s most recent annual filing with the Securities and Exchange Commission. Amex had $261 billion in consolidated assets for the quarter ended Dec. 31, up from $251 billion for the prior quarter.
• Such firms are “subject to heightened capital, liquidity and prudential requirements, single-counterparty credit limits and additional stress tests,” the filing said.

Dive Insight:

Amex is subject to federal bank regulators’ rules that adjust the application of enhanced prudential standards to bank holding companies and depository institutions that have $100 billion or more in consolidated assets, the company noted in its annual filing. 

In its current categorization, category IV, Amex and its subsidiary, American Express National Bank, face the least stringent requirements, according to the filing. The company is required to participate in the Federal Reserve’s supervisory stress tests every other year, including this year. Stress tests are intended to assess whether a bank holding company has sufficient capital to absorb losses during an economic crisis.

If and when Amex becomes a category III bank, based on its assets, it would be subject to annual supervisory stress tests, and would also have to conduct company‐run stress tests every other year, known as Dodd‐Frank Act Stress Tests, Amex said in the filing.

The change would set Amex up to face more stringent requirements than it has in the past. In 2019, the Fed opted to allow banks with between $100 billion and $250 billion in assets to be subject to stress tests every other year, rather than annually.

Amex’s net income rose 11% for 2023, to $8.4 billion, according to its most recent quarterly earnings press release. The card issuer’s full-year 2023 revenue, less interest expense, increased 14%, to $60.5 billion.

Amex executives have said the company’s more affluent cardholders have continued spending amid economic uncertainty. The company has also been betting on demand for its premium, fee-based products, especially among millennial and Gen Z consumers. 

In the filing, Amex also noted the possibility it could move into an even higher regulatory classification, category II, down the road. 

If the company has $75 billion or more in cross-jurisdictional activity, for example, it could result in the company being “subject to more stringent capital, liquidity and prudential requirements,” the filing said. “Our cross-jurisdictional activity was $67 billion as of December 31, 2023, and the four-quarter trailing average was $60 billion.” 

The card issuer employed about 74,600 people as of the end of last year, with about 26,000 based in the U.S. and about 48,600 outside the U.S., according to the filing. That headcount was about 3% lower than the 77,300 reported by Amex at the end of 2022.

Spokespeople for the company didn’t respond to requests for comment.