Federal Reserve board seeks comment on change to simplify capital rules
12 April 2018 Washington DC
Image: Shutterstock
The Federal Reserve board has requested comment on a proposal that would simplify its capital rules for large banks, while preserving strong capital levels that would maintain their ability to lend to households and businesses under stressful conditions.
The proposal would introduce a stress capital buffer (SCB), which would, in part, integrate the forward-looking stress test results with the board's non-stress capital requirements.
According to the board, the result would produce capital requirements for large banking organisation that are “firm-specific and risk-sensitive”.
Currently, bank holding companies with more than $50 billion in total consolidated assets undergo annual supervisory stress tests run by the board, known as the comprehensive capital analysis and review (CCAR).
CCAR requires firms to demonstrate their ability to continue to lend under hypothetical adverse economic conditions. These firms are also subject to non-stress capital requirements.
The SCB would be sized through the stress test and would be part of the firm's ongoing capital requirements, producing a tailored and risk-sensitive capital regime for large banking organisations.
Randal Quarles, vice chairman for supervision at the Federal Reserve, said: "Our regulatory measures are most effective when they are as simple and transparent as possible, and this proposal significantly simplifies our capital regime while maintaining its strength."
He added: "It is a good example of how our work can be done more efficiently and effectively, and in a way that bolsters the resiliency of the financial system."
The proposal would introduce a stress capital buffer (SCB), which would, in part, integrate the forward-looking stress test results with the board's non-stress capital requirements.
According to the board, the result would produce capital requirements for large banking organisation that are “firm-specific and risk-sensitive”.
Currently, bank holding companies with more than $50 billion in total consolidated assets undergo annual supervisory stress tests run by the board, known as the comprehensive capital analysis and review (CCAR).
CCAR requires firms to demonstrate their ability to continue to lend under hypothetical adverse economic conditions. These firms are also subject to non-stress capital requirements.
The SCB would be sized through the stress test and would be part of the firm's ongoing capital requirements, producing a tailored and risk-sensitive capital regime for large banking organisations.
Randal Quarles, vice chairman for supervision at the Federal Reserve, said: "Our regulatory measures are most effective when they are as simple and transparent as possible, and this proposal significantly simplifies our capital regime while maintaining its strength."
He added: "It is a good example of how our work can be done more efficiently and effectively, and in a way that bolsters the resiliency of the financial system."
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