Federal bank regulatory agencies are seeking public comments on three proposals to modernize the regulatory capital framework for banks of all sizes.
The proposals would streamline capital requirements and better align regulatory capital with risk while maintaining the safety and soundness of the banking system.
The first proposal would primarily apply to the largest, most internationally active banks. It would improve the capital framework by enhancing risk sensitivity, reducing burden, and improving consistency across banks, as well as implementing the final components of the Basel III agreement. The framework would be streamlined by having these banks use one rather than two sets of calculations to determine compliance with capital requirements. Further, the proposal would improve the calibration of the framework to better capture credit, market, and operational risks. In addition, all other banks could choose to adopt this proposed approach. However, the market risk aspect of the framework would apply only to banks with significant trading activity.
The second proposal would generally apply to all but the largest banks. It seeks to better align capital requirements for traditional lending activities with risk, while maintaining the framework’s simplicity. Consistent with the first proposal, the second proposal would reduce disincentives for mortgage lending by modifying capital requirements for servicing and originating mortgages. Proposed modifications for mortgage servicing would also apply to banks that apply the community bank leverage ratio framework. Additionally, this proposal would also require certain large banks to reflect unrealized gains and losses on certain securities in their regulatory capital levels.
The third proposal, coming from the Federal Reserve Board, looks to improve how systemic risk is measured in the framework for determining the additional capital requirement for the largest and most complex banks.
While the agencies anticipate that the amount of overall capital in the banking system would modestly decrease as a result of these proposals, capital levels would still be substantially higher than they were before the financial crisis. Overall, the proposals would modestly reduce capital requirements for large banks and moderately reduce requirements for smaller banks, reflecting their more traditional lending activities.
The three banking regulatory agencies include the Federal Deposit Insurance Corporation, Federal Reserve Board, and the Office of the Comptroller of the Currency.
Comments on all three proposals must be received by June 18.