The Federal Reserve Board is seeking comment on a proposal to simplify capital rules for large banks while preserving their ability to lend under stressful conditions.
The Fed proposal introduces a stress capital buffer (SCB) a concept designed to produce capital requirements for large banking organizations that are firm-specific and risk-sensitive.
“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,” the Fed’s Vice Chairman for Supervision Randal Quarles said. “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.”
Right now, bank holding companies with more than $50 billion in assets must take annual supervisory stress tests run by the Fed, known as the Comprehensive Capital Analysis and Review (CCAR). Through CCAR, firms are required to show their ability to lend under hypothetical adverse economic conditions.
The new SCB proposal would be sized through the stress test, producing a tailored and risk-sensitive capital regime for large banking organizations. Thus, large firms would be required to meet 14 capital-related requirements, instead of the current 24.
The Fed said the proposed changes would maintain or somewhat increase the amount of capital required for global systemically important bank (GSIB) and decrease the amount of capital required for most non-GSIBs. Further, the proposal would modify several assumptions in the CCAR process to better align them with a firm’s expected actions under stress.
U.S. banks have increased their capital since the first round of stress tests in 2009. The capital ratio of the bank holding companies in the 2017 CCAR was 12.1 percent, more than twice what it was in the first quarter of 2009, 5.5 percent.
Comments will be accepted for 60 days.