Michael Barr, Vice Chairman for Supervision of the Federal Reserve, The changes were announced on Tuesday If approved, the proposed Basel final rules would roughly cut in half the amount of excess capital that large banks would be forced to hold.
The first suggestion is, To be introduced in July 2023which would increase capital requirements for systemically important banks globally by around 19%.
But Barr said Tuesday that the Fed, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. have revised their proposal and plan to resubmit it with a roughly 9% increase in capital requirements for those banks.
G-SIBs aren’t the only banks that would get relief under Tuesday’s proposed requirements. Large banks with more than $250 billion in assets would need to increase their capital by 3% to 4% under the revised plan, down from the 6% increase called for under last year’s proposal. Banks with assets between $100 billion and $250 billion would need to increase their capital by 0.5% under the revised plan, down from 6% last year.
“Bank capital is [banking industry] resilience … but capital also has a cost,” he said in prepared remarks ahead of the meeting. Speech at the Brookings Institution.
“Compared to debt, capital is a costlier source of funding for banks. Higher capital requirements would therefore raise funding costs for banks, which may pass on higher costs to households, businesses and customers who engage in a range of financial activities,” Barr said. “These activities are essential to the smooth functioning of a functioning economy for everyone. That’s why striking the right balance between resilience and efficiency is so important.”
Attorney General Barr said Tuesday that the plan is not set in stone and that regulators have not “made any final decisions on any aspect of the reproposal, including any aspect not specifically addressed in the reproposal.”
“This is an interim measure and I would like to reiterate that we welcome comment on all aspects of the proposals,” he said.
Asked about the timeline at a Brookings Institution event, Barr said that no matter when the rules are finalized, banks would have a year to begin implementing them. He said the November presidential election would have no impact on the rules.
“I view my job at the Fed as being to not pay any attention to the election,” he said. “I’m here for a set period of time. I’m just going to do my job.”
Barr’s term at the Fed ends in 2026.
The proposal last summer drew the ire of CEOs of major banks, such as JPMorgan Chase & Co. CEO Jamie Dimon. Called enhanced capital requirements “It’s flawed and poorly coordinated.”
Even regulators like the FDIC Jonathan McKernan and Travis HillThe Fed has expressed opposition to the Basel final plan. And in testimony before Congress in March, Fed Chairman Jerome Powell said: “Broad” and “Important” Changes in proposals.
“The journey towards improving capital requirements is [financial crisis of 2008] “This is a long journey, and the final steps of Basel III are a key component of this effort,” Barr said on Tuesday. “These revised proposals bring us one step closer to completing the agenda.”
Barr said the Fed was considering how stress tests would complement the proposed rules, adding that officials would continue to “explore approaches to ensure the resilience of the financial system and support the flow of credit to households and businesses.”
“It’s paramount that we get this right,” he said.