U.S. Federal Reserve Proposes Rules Raising Quantity, Quality of Capital for U.S. Banks
By Jeff Bater
The Federal Reserve, implementing heightened international standards known as Basel III, proposed rules at a June 7 meeting that would increase the quantity and quality of capital required for U.S. banks.
The Fed approved three notices of proposed rulemakings and asked for public comments by Sept. 7.
The proposals are intended to address shortcomings in these requirements that became apparent during the financial crisis, in part, by implementing in the United States changes made by the Basel Committee on Banking Supervision to international regulatory capital standards.
“Uncertainty about the capital positions of large financial firms was a major factor in the turmoil that beset the country in the fall of 2008,” Fed Governor Daniel Tarullo said in a statement. “While rigorous capital requirements are not a sufficient condition for a strong, resilient financial system, they are surely a necessary one.
“A bank with a strong capital position can absorb losses from unexpected sources, whether an external shock to the economy, the insolvency of important counterparties, or a failure of risk management within the firm,” Tarullo said. “Strong capital buffers help ensure that losses are borne by shareholders of the bank, not by taxpayers — either directly through some form of bailout, or indirectly through a major negative effect on the economy resulting from the bank’s failure.”
One analyst said the Fed meeting “came out as well as could have been expected for U.S. banks.”
“Calls to radically scale back Basel 3 or the market risk rules were never going to carry the day,” said Jaret Seiberg of Guggenheim Securities LLC in a research note to clients. “And they did not. The Federal Reserve said U.S. banks would not need to raise any capital to meet the higher standards as retained earnings will be sufficient. That should be a positive for U.S. banks.”…