Fed To Impose Stricter Capital Rules On Wall St Banks
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The United States Federal Reserve on Tuesday voted unanimously in favour of tougher bank capital rules for Wall Street, a move in line with developing international standards meant to prevent another catastrophic bank bailout seen in 2008.
At a board meeting in Washington, Fed officials led by Chairman Ben Bernanke agreed to force banks to abide by the new, tougher international standards on bank capital and debt.
The United States Federal Reserve on Tuesday voted unanimously in favour of tougher bank capital rules for Wall Street, a move in line with developing international standards meant to prevent another catastrophic bank bailout seen in 2008.
At a board meeting in Washington, Fed officials led by Chairman Ben Bernanke agreed to force banks to abide by the new, tougher international standards on bank capital and debt.
The enhanced standards, part of the so-called Basel III Accord and named after the Swiss city where many of the negotiations on the accord were first held, will see most banks hold about three times as much top-quality capital as is required under existing rules, and are designed to ensure that banks continue operating during “severe economic downturns”.
“With these revisions to our capital rules, banking organisations will be better able to withstand periods of financial stress, thus contributing to the overall health of the U.S. economy,” Bernanke said in a statement.
“Critically, this framework requires banking organisations to hold more and higher quality capital, which acts as a financial cushion to absorb losses, while reducing the incentive for firms to take excessive risks,” he added.
Roughly 100 banks will have to raise roughly $4.5 billion in capital by 2019, according to a Fed estimate.
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The Federal Deposit Insurance Corp and the Office of the Comptroller of the Currency are scheduled to vote on the final draft next Tuesday. Banks would have to start phasing in the rules in January but have five years to complete the transition.
U.S. officials hope Tuesday’s vote will neutralise complaints from European regulators and politicians about slow adoption of the rules.
The U.S. has been pressured by policymakers ranging from Angela Merkel, the German chancellor, and Michel Barnier, the European commissioner, to implement the global Basel III standards, designed to make banks more resilient in a crisis.
“Adoption of the capital rules today is a milestone in our post-crisis efforts to make the financial system safer,” said Basel Committee on Banking Supervision, Federal Reserve Governor Daniel Tarullo. “Along with the stress testing and capital review measures we have already implemented, and the additional rules for large institutions that are on the way, these new rules are an essential component of a set of mutually reinforcing capital requirements.”
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