Fed to force banks to follow tougher capital rules

Published: 03 July 2013
The Federal Reserve warned US banks to expect a new raft of regulations on top of the Basel III capital regime it implemented on Tuesday.

At a board meeting in Washington, Fed officials led by chairman Ben Bernanke agreed to force banks to abide by the new, tougher international Basel III standards from January. But Daniel Tarullo, the Fed governor in charge of regulation, outlined further plans to force the largest banks to sacrifice profits in the name of safety. They include proposals to force banks to hold a higher level of equity against total assets and capital charges targeted at banks most exposed to short-term wholesale funding.

Officials have previously mentioned the ideas in speeches but not as firm policy goals. Tarullo said the Fed was “very close” to unveiling a plan to place a tougher cap on leverage for US banks - favoured by some policy makers as a blunter tool that is harder for the industry to evade than risk-based capital - complaining that the international leverage ratio was "set too low".

By requiring US banks to start following the Basel III rules on capital, Fed officials hope to neutralise complaints from European regulators and politicians about slow adoption of the rules. The US has been pressured by policy makers 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.
- FT


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