Agencies Request Comment on Proposed Rules to Strengthen Capital Requirements for Large Banks (2024)
For release at July 27, 2023
Bank regulatory agencies today requested comment on a proposal to increase the strength and resilience of the banking system. The proposal would modify large bank capital requirements to better reflect underlying risks and increase the consistency of how banks measure their risks.
The changes would implement the final components of the Basel III agreement, also known as the Basel III endgame. Additionally, following the banking turmoil in March 2023, the proposal seeks to further strengthen the banking system by applying a broader set of capital requirements to more large banks. The proposal would generally apply to banks with $100 billion or more in total assets. Community banks would not be impacted by this proposal.
In particular, the proposal would standardize aspects of the capital framework related to credit risk, market risk, operational risk, and financial derivative risk. Additionally, the proposal would require banks to include unrealized gains and losses from certain securities in their capital ratios. These banks would also be subject to the supplementary leverage ratio and the countercyclical capital buffer, if activated.
The proposed improvements to strengthen the banking system are estimated to result in an aggregate 16 percent increase in common equity tier 1 capital requirements for affected bank holding companies, with the increase principally affecting the largest and most complex banks. The effects would vary for each bank based on its activities and risk profile. Most banks currently would have enough capital to meet the proposed requirements.
The proposal includes transition provisions to give banks sufficient time to adapt to the changes while minimizing any potential adverse impact. During the comment period, the agencies will collect data to further refine their estimate of the proposal’s impact. Under the proposal, large banks would begin transitioning to the new framework on July 1, 2025, with full compliance starting July 1, 2028.
Separately, the Federal Reserve Board today also requested comment on a proposal that would make certain adjustments to the calculation of the capital surcharge for the largest and most complex banks. The changes would better align the surcharge to each bank’s systemic risk profile, in particular by measuring a bank’s systemic importance averaged over the entire year, instead of only at the year–end value.
Comments on both proposals are due by November 30, 2023, which is more than 120 days for public comment.
Bank regulatory agencies today requested comment on a proposal to increase the strength and resilience of the banking system. The proposal would modify large bank capital requirements to better reflect underlying risks and increase the consistency of how banks measure their risks.
Under the July 2023 proposal, the largest US banks would face about a 19% increase in how much capital they must hold to buffer against losses, with lenders between $100 billion and $250 billion in assets seeing as little as 5% more, according to government estimates.
US regulators proposed new rules last summer requiring banks to add billions of dollars to their so-called capital cushions, which offer protection during downturns. The heaviest burdens would fall on the biggest banks, which would have to boost their capital levels by about 19%.
Published March 8, 2024. A primary purpose of bank capital is to protect depositors from losses and banks from failure. Ensuring adequate capital has been a consistent historical priority of US banking regulators as part of their role in promoting a safe banking system.
In the U.S., adequately capitalized banks have a tier 1 capital-to-risk-weighted assets ratio of at least 4.5%. Capital requirements are often tightened after an economic recession, stock market crash, or another type of financial crisis.
Financial institutions under the generally applicable capital rule are required to maintain a capital conservation buffer of greater than 2.5 percent in order to avoid restrictions on capital distributions and other payments.
The OCC charters, regulates, and supervises all national banks and federal savings associations as well as federal branches and agencies of foreign banks. The OCC is an independent bureau of the U.S. Department of the Treasury.
Capital rules are set through regulation by the federal bank regulators—the Federal Deposit Insurance Corporation (FDIC), the Federal Reserve, and the Office of the Comptroller of the Currency (OCC)—and are modeled off international agreements made by the members of the Basel Committee on Banking Supervision, which ...
There are numerous agencies assigned to regulate and oversee financial institutions and financial markets in the United States, including the Federal Reserve Board (FRB), the Federal Deposit Insurance Corp. (FDIC), and the Securities and Exchange Commission (SEC).
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