Fed to Lighten Bank Capital Requirements in Major Overhaul

A revised bank-capital overhaul, announced Tuesday by Federal Reserve Vice Chair for Supervision Michael Barr, would result in a 9% increase in capital requirements for the largest U.S. banks, referred to as global systemically important banks (GSIBs). This increase is significantly lower than the 19% capital hike that regulators proposed in the original plan last July.

According to Barr, the Basel III endgame rule will be revised and softer, and a distinct capital rule will be implemented for large, high-risk lenders. This is a triumph for Wall Street banks, which have opposed significant increases in capital requirements.

Banks with assets exceeding $250 billion will be essentially exempt from the Basel rule, Barr said. He did not specify the anticipated date on which the Federal Reserve will propose the new outline. The initial proposal applies chiefly to financial institutions with assets that exceed $100 billion.

“There are benefits and costs to increasing capital requirements. The changes we intend to make will bring these two important objectives into better balance, in light of the feedback we have received,” he said in a prepared speech at the Brookings Institution in Washington, D.C.

In June, the Fed proposed a significantly softer version of capital regulations for large US banks, suggesting increasing required capital by as little as 5%. This compares to the original proposal of a 16% increase.