WASHINGTON—The Federal Reserve is set to propose a new way of deciding which large banks get hit with its toughest regulations, according to people familiar with the matter.

The expected plan may lower regulatory costs for regional U.S. lenders under the $700 billion asset line, from Discover Financial Services Inc. at around $100 billion in assets to U.S. Bancorp with its roughly $460 billion. The changes under consideration appear to be less beneficial to the very largest U.S. banks considered “systemically important” to...