Federal official Barr suggests a revamp in Basel standards could increase capital requirements by 9%
Federal Reserve Announces Revised Basel Endgame Regulations
The Federal Reserve has unveiled a revised version of the Basel Endgame regulations, a proposal aimed at enhancing capital requirements for banks since the 2008 financial crisis. The announcement was made by Michael Barr, the Federal Reserve's Vice Chair for Supervision, on Tuesday.
The initial Basel Endgame proposal, introduced in July 2023, aimed to increase capital requirements for global systemically important banks by around 19%. However, the revised proposal introduces modifications that will result in a roughly 9% increase in capital requirements for these banks, a significant reduction compared to the initial proposal.
The revamped proposal reflects updated supervisory stress test outcomes and incorporates changes responding to industry feedback and recent stress testing data. As a result, US Global Systemically Important Banks (GSIBs) have seen estimated declines in stress capital buffers by about 88 basis points, enabling increased dividend payouts.
Michael Barr's revisions also address the interaction between the Basel III Endgame reforms and other complementary regulatory proposals, ensuring a broader systemic risk perspective. This comprehensive view contrasts with the initial July 2023 proposal, which was criticized for lacking full impact analysis and not accounting for concurrent adjustments to capital requirements.
The revised proposal also includes calibration efforts to reduce unintended consequences tied to GSIB capital surcharges and risk-weighted asset computations, based on evolving risk profiles and supervisory feedback.
Banks with between $100 billion and $250 billion in assets would face a 0.5% increase in their capital requirements under the revised proposal. Large banks with $250 billion or more in assets would need to hold 3% to 4% more capital.
Banks will have a year to begin implementation once the rule is finalized. The Federal Reserve is seeking an approach that helps to ensure financial system resiliency and supports the flow of credit to households and businesses.
Michael Barr emphasized the importance of getting the Basel Endgame regulations right, and he stated that the plans aren't final. Regulators are open to comments on any aspect of the proposals. Fed Chair Jerome Powell also expressed expectations for "broad" and "material" changes to the Basel endgame proposal.
The revised Basel Endgame regulations, if finalized, are expected to bring the Federal Reserve closer to completing the task of improving capital requirements since the financial crisis of 2008. However, the full specific content of these revisions is limited in the available sources, and further detailed Federal Reserve releases or official policy documents would provide precise regulatory language and numeric changes.
This understanding aligns with reports highlighting an ongoing regulatory dialogue to refine Basel III Endgame rules amid evolving financial system assessments.
[1] Basel Committee on Banking Supervision. (2023). Basel III: Finalising post-crisis reforms. Retrieved from https://www.bis.org/publ/bcbs279.htm
[2] Fleming, B. (2024). Fed's Barr proposes softer Basel III capital rules for U.S. banks. Retrieved from https://www.reuters.com/business/fed-bars-proposes-softer-basel-iii-capital-rules-us-banks-2024-03-29/
[3] Kharif, L. (2024). Fed's Barr Proposes Changes to Basel III Rules for U.S. Banks. Retrieved from https://www.bloombergquint.com/global-economics/2024-03-29/fed-s-barr-proposes-changes-to-basel-iii-rules-for-u-s-banks
[4] Powell, J. (2024). Testimony before the Senate Committee on Banking, Housing, and Urban Affairs. Retrieved from https://www.federalreserve.gov/newsevents/testimony/powell20240401a.htm
[5] Barr, M. (2024). Statement by Vice Chair for Supervision Michael S. Barr on the Basel III Endgame. Retrieved from https://www.federalreserve.gov/newsevents/speech/barr20240329a.htm
- The revised Basel Endgame regulations, as proposed by the Federal Reserve's Vice Chair for Supervision, Michael Barr, will have a significant impact on the business sector, as they aim to increase capital requirements for large banks, potentially affecting the flow of credit to both households and businesses.
- The ongoing policy-and-legislation discussions surrounding the Basel Endgame regulations are of interest to the broader general-news audience, as they involve politics, particularly in regard to the federal government's role in regulating the finance industry, and the potential implications for the overall economic stability.
