Federal Reserve Board (Federal Reserve) Vice Chairman for Supervision Randall Quarles has advocated tailoring the post-crisis regulations to better reflect the risk posed by individual institutions. Although the focus has primarily looked to reducing the regulatory burden of community banks, two recently proposed rules would tailor certain regulatory capital requirements for very large banking institutions and tie those requirements to the firms’ business activities and risk profiles. Key features of each proposal is summarized below.
The Federal Reserve has proposed to integrate the quantitative assessment of its Comprehensive Capital Analysis and Review (CCAR) with the buffer requirements in its capital rules to create “stress buffer requirements,” including a “stress capital buffer” and a “stress leverage buffer.” The rule would apply to bank holding companies (BHCs) with total consolidated assets of $50 billion or more and intermediate holding companies of foreign banking organizations. A firm’s stress buffer requirements would be effective on October 1 of each year, and remain in effect until September 30 of the following year. As proposed, the rule would become effective on December 31, 2018 with the first stress capital buffer and stress leverage buffer requirements becoming generally effective October 1, 2019.
The ESLR is applicable to U.S. global systemically important banking holding companies (GSIBs) and their Federal Reserve- and OCC-regulated insured depository institutions (Covered IDIs). For these entities, the proposed changes would:
Federal Reserve staff estimate the proposed stress buffer requirements would decrease the amount of capital required for non-GSIBs subject to CCAR relative to current requirements, and generally maintain or, in a few cases, increase the amount of capital required for GSIBs. With regard to the ESLR proposal, Federal Reserve and OCC staff estimate that the changes would lead to a reduction in CET1 capital requirements of approximately $400 million. Firms would continue to be expected to meet minimum capital requirements plus minimum buffer requirements to avoid limitations on capital distributions and discretionary bonus payments.