Regulators without borders

2 July 2013 By Daniel Indiviglio

The Fed is giving a thumbs-up to the Swiss-sanctioned global bank capital rules. The FDIC and OCC should follow suit soon. That quiets overseas critics skeptical that America would play ball. It should also coax Europe and Asia to show a similar team mentality on other issues.

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The U.S. Federal Reserve Board voted unanimously on July 2 to finalize new bank capital rules. Those standards largely mirror the Basel III global framework laid out by the Bank for International Settlements. The Office of the Comptroller of the Currency has indicated that it will approve the rules next week. The Federal Deposit Insurance Corp will vote on July 9 to approve an interim version of the framework that is likely to be finalized later this year.
The new standards will raise minimum requirements for both the equity and quality of capital held by banks. Consistent with Basel III, they call for a minimum ratio of common equity Tier 1 capital to risk-weighted assets of 4.5 percent and a common equity Tier 1 capital conservation buffer of 2.5 percent of risk-weighted assets. The minimum Tier 1 capital to risk-weighted assets ratio will rise to 6 percent from 4 percent. The minimum leverage ratio will be 4 percent – or in other words, leverage can go no higher than 25 times equity. Implementation will begin for large banks in January 2014.
The rules will be a little less stringent for community banks. For example, these smaller lenders will not be required to phase in the new rules until January 2015 and will face a milder risk-weighting burden for residential mortgages.

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