Fed Proposes Bank Capital Rules;Mostly Complying With Basel 3
By Ylai N’Diaye
WASHINGTON (MNI) – The Federal Reserve Board Thursday proposed its
interpretation of the Basel III international capital accord, raising
the top tier capital requirement to 7% of the risk-weighted assets.
All board members, including Chairman Ben Bernanke, Vice Chair
Janet Yellen, governors Daniel Tarullo, Elizabeth Duke, and Sarah Bloom
Raskin, voted to submit three proposals related to capital rules for
comment, with a submission deadline set on September 7.
Fed officials told reporters during the conference call that the
rules mostly comply with Basel 3.
The proposed rule, however, would replace the use of credit ratings
for securitization exposures with a formula-based approach.
The minimum capital ratio rule, if finalized as it is, will be
phased in through 2019.
Once other bank regulators — The Treasury Department Office of the
Comptroller of the Currency and the Federal Deposit Insurance
Corporation — issue their own rules, all U.S. banks and depository
institutions will be covered. At the bank holding company level, those
with total consolidated assets of $500 million or more are concerned.
The proposed rule requires a new minimum common equity tier 1 ratio
of 4.5% of risk-weighted assets and a common equity tier 1 capital
conservation buffer of 2.5% of risk-weighted assets.
“The vast majority of banking organizations currently would meet
the fully phased-in minimum capital requirements as of March 31, 2012,
and those organizations that would not meet the proposed minimum
requirements should have ample time to adjust their capital levels by
the end of the transition period,” the proposal said.
Fed officials estimated that over 90% of banks with more than $10
billion in assets would meet the 7% ratio. Among those not meeting the
7%, the aggregate shortfall would be $6 billion based on the
The proposal noted that “The agencies believe that the benefits of
these changes to the U.S. financial system, in terms of the reduction of
risk to the deposit insurance fund and the financial system, ultimately
outweigh the burden on banking organizations of compliance with the new
This is not the financial industry’s assessment.
“New capital and liquidity standards laid out by Basel III and
today proposed by the Federal Reserve will have a significant impact on
not only the safety and soundness of the financial system, but also on
the availability of credit,” SIFMA President and CEO Tim Ryan said in a
“Requiring excessive regulatory capital,” he added, “will limit the
ability of financial institutions to facilitate capital formation to the
commercial sector that, in turn, supports new investment critical to
economic growth and job creation.”
For Bernanke, “With these proposed revisions, banking
organizations’ capital requirements should better reflect their risk
profiles, improving the resilience of the U.S. banking system in times
of stress, thus contributing to the overall health of the U.S. economy.”
The Fed also proposed a rule revising the calculation of
risk-weighted assets under the standardized approach.
A third proposal on advanced approaches “would enhance the risk
sensitivity of the current rule for internationally active firms to
better address counterparty credit risk and interconnectedness among
The Basel Committee on Banking Supervision quantitative liquidity
requirements and the BCBS capital surcharge for global systemically
important banks are not part of this rulemaking.
** MNI Washington Bureau: 202-371-2121 **