MNI BRIEF: Fed Barr Proposes Raising Bank Capital Requirements

Federal Reserve Vice Chair for Supervision Michael Barr Monday proposed strengthened capital standards for large banks over USD100 million in assets, arguing it would significantly strengthen the financial system and prepare it for emerging and unanticipated risks.

For a firm’s lending activities, the proposed rules would end the practice of relying on banks’ own individual estimates of their own risk and instead use a consistent approach, and for a firm’s trading activities the proposed rules would adjust the way that the firm measures market risk, he said. "These changes would raise market risk capital requirements by correcting for gaps in the current rules," Barr said.

Importantly, the proposed adjustments would require banks with assets of USD100billion or more to account for unrealized losses and gains in their available-for-sale(AFS) securities when calculating their regulatory capital, he said. Barr added that he would recommend to the Fed's Board that it activate a buffer under the CCyB framework "if macroeconomic conditions suggested that it would be appropriate."

As part of the holistic review, Barr also evaluated whether to adjust the enhanced supplementary leverage ratio. "I am not recommending changes to the calibration at this time," he said, arguing the evidence is inconclusive as to whether the eSLR is a binding constraint and has reduced Treasury market intermediation.