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August 20, 2013

Fed advises US banks to lift capital targets

The largest US banks should hold regulatory capital beyond their own internal targets to better prepare them for periods of market stress, according to a study published by the Federal Reserve on Monday.

The study, which examined banks’ approaches to the Fed’s recent stress tests, also said that while banks had “considerably improved” their regulatory capital planning in recent years, they had “more work to do to enhance their practices”.

Banks have at times criticised the Fed for the way it administers its annual industry stress tests, which were first run in 2009 as a way of gauging banks’ preparedness for a future financial crisis. Monday’s suggestion that banks should hold capital beyond their own goals is likely to fuel speculation that the Fed has in effect created another minimum capital requirement for the industry.

The biggest banks should ‘establish capital targets above their capital goals to ensure that capital levels will not fall below the goals during periods of stress’, the US central bank said. ‘The goals and targets should be specified in the capital policy and reviewed and approved by the board.’”


Read full Financial Times article here

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