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July 2, 2013

Fed Governors Unanimously Approve New Capital Rules For Banks

U.S. bank regulators Tuesday set in stone the vast array of higher capital requirements and reduced leverage ratios that the banks expected and which most of them already meet, while postponing work on the risk weightings for a key ingredient of the financial crisis, mortgages, until “the dust settles.”

The Federal Reserve Board members, in a special open meeting, were unanimous in their approval of new capital standards for the U.S. banking system worked out with the FDIC and the Office of Comptroller of the Currency, both of which will affirm the decision in their own votes later in the month.

The net effect of the extensive new rule – 972 pages long – is to require a modest amount of additional capital be raised among 100 banking organizations by 2019 – just $4.5 billion. Combined with stress tests and special rules for the largest banks, including pending liquidity minimums and capital surcharges, the new capital rules comprise the main government banking remedy to the financial crisis.

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Still to come are the new standards for the combined amount of equity and long-term debt the largest banks should hold in order to make their orderly shutdown possible if necessary, without taxpayer help.

Also coming later this year is a new rule establishing a framework for capital surcharges to be applied to the “systemically significant” banks whose failure could disrupt the entire financial system.

Finally, still pending is a set of rules that address the risks faced by banks which are substantially dependent on wholesale funding, Tarullo said.

For some members of Congress the U.S. regulators are not going far enough. Sen. Sherrod Brown and Sen. David Vitter have introduced legislation that would stiffen capital requirements even more.

At Better Markets, a nonprofit organization promoting strong reforms, the view is also that regulators did not do enough.

“The rule announced by the Federal Reserve Bank today fails to learn the lessons of the most recent crisis and makes the next crisis – and more bailouts – more likely,” President and CEO Dennis Kelleher said in a statement Tuesday, calling for “substantially” higher equity requirements.”

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Read full MNI News article here

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