Federal banking regulators proposed rulemaking designed to increase capital requirements for large banks and large-scale traders.
The proposed rule, jointly issued Thursday by the Federal Deposit Insurance Corporation (FDIC), the Federal Reserve Board, and the Treasury Department’s Office of the Comptroller of the Currency (OCC), would apply to institutions with total assets of $100 billion or more and other banking organizations with significant trading activity. Intentions to put forward the rule predated the banking turmoil kicked off by the collapse of Silicon Valley Bank in March, which has led to increased calls for measures to increase the stability of the U.S. banking system.
“Recent events demonstrated the effects that stress at a few large, regional banking organizations could have on the stability, public confidence, and trust in the banking system,” said Acting Comptroller of the Currency Michael Hsu in a statement. “While the recent events may be attributed to a variety of factors, the effect on financial stability supports further alignment of the regulatory capital framework across all large banking organizations with $100 billion or more of assets.”
The proposed rule would include a standardized approach for calculating risk-weighted assets, thus eliminating the practice of banks individually estimating their credit and operational risks. The impact of the proposal would vary, mostly affecting banking organizations with heightened risk profiles and greater trading activity.
Also included would be a new standardized model to measure market risk that would apply to banking organizations with $5 billion or more in trading assets plus trading liabilities.
The changes would “enhance the resilience and stability of the banking system and enable the banking system to better serve the U.S. economy,” said FDIC Chair Martin Gruenberg in a statement. “Enhanced resilience of the banking sector supports more stable lending through the economic cycle and diminishes the likelihood of financial crises and their associated costs.”
The proposal was born from cracks in the banking system revealed by the 2008 financial crisis. Its requirements are largely consistent with reforms issued by the international Basel Committee on Banking Supervision.
Comments on the proposal are due by Nov. 30. The changes would not fully take effect until July 2028.