Banking Regulators Move to Cut Capital Requirements

The federal bank regulators are seeking comment on three proposals they said would streamline capital requirements for banks of all sizes, better align regulatory capital with risk, and maintain the safety and soundness of the banking system.

The Federal Deposit Insurance Corporation (FDIC), Federal Reserve Board and Office of the Comptroller of the Currency (OCC) announced the proposals Thursday (March 19) in a joint press release and said they will accept comments until June 18.

The regulators said in the release that the proposals would improve certain parts of the capital and stress-testing requirements that were increased or introduced in the wake of the global financial crisis.

One proposal would primarily apply to the largest and most internationally active banks. It would modify the existing capital framework by enhancing risk sensitivity, reducing burden, improving consistency across banks and implementing the final components of the Basel III agreement, according to the release.

Another proposal would apply to all but the largest banks. It would better align capital requirements for traditional lending activities with risk and reduce disincentives for mortgage lending, the release said.

The third proposal, from the Federal Reserve Board, would apply to the largest and most complex banks and would improve how their additional capital requirements are determined, per the release.

The regulators said in the release that these proposals would “modestly” reduce the capital requirements for both large banks and smaller banks but would keep the capital levels in the banking system “substantially higher” than they were before the financial crisis.

FDIC Chairman Travis Hill said in a statement released Thursday: “I support strong capital requirements, which I view as a critical tool to ensuring a safe and sound banking system. At the same time, calibrating capital requirements always involves balancing a number of competing objectives, including resiliency against unexpected shocks and driving economic growth.”

Federal Reserve Board Chair Jerome H. Powell said in a statement: “Financial regulators should always strive to improve. It is a healthy practice to reexamine rules over time to ensure they are still effectively and efficiently mitigating the risks they were designed to address.”

Comptroller of the Currency Jonathan V. Gould said in a Thursday statement that the OCC estimates that the banks it supervises would see their capital requirements reduced by 6.9% under the proposals.

“This increases lending capacity and gives banks more runway to support their communities and customers,” Gould said.

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