Minneapolis Fed Releases Final Minneapolis Plan to End Too Big to Fail
The Federal Reserve Bank of Minneapolis (Minneapolis Fed) released the final Minneapolis Plan to end too-big-to-fail (TBTF). This plan makes a stronger case than the draft plan, for raising capital requirements for the largest banks while drastically reducing burden on the smallest banks. Enacting the Minneapolis Plan would reduce the 100-year chance of a crisis—from the current risk of 67% to only 9%—while generating substantial benefits relative to costs.
The Minneapolis Fed had released a draft plan in late 2016 and invited public and expert review and feedback. The comments confirm that the fundamental analysis and recommendations were correct. New analyses by experts (who are unrelated to the Minneapolis Plan effort) during the review period also support and call for capital requirements similar to those recommended in the Minneapolis Plan. The final plan provides significantly more detail on the recommendation to right-size the supervision and regulation of community banks. The plan would fundamentally change the nature of community bank supervision, effectively limiting supervision to the aspects of community banking that pose real risk. The plan brings that same approach to bank regulation, changing community bank rules on capital requirements, appraisals, data collection, some Dodd-Frank requirements, and other areas. The Minneapolis Plan includes four steps to strengthen the financial system:
- Dramatically increase common equity capital for banks with assets exceeding USD 250 billion.
- Call on the U.S. Treasury Secretary to certify that individual large banks are no longer systemically important or else subject those banks to extraordinary increases in capital requirements—up to 38% over time.
- Prevent future TBTF problems in the shadow financial sector by imposing a tax on the borrowings of shadow banks with assets over USD 50 billion.
- Reduce unnecessary regulatory burden on community banks.
Related Link: Press Release
Keywords: Americas, US, Banking, TBTF, Minneapolis Plan, Proportionality, Minneapolis Fed
Related Articles
BIS and Central Banks Experiment with GenAI to Assess Climate Risks
A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe
Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures
Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.
Singapore to Mandate Climate Disclosures from FY2025
Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
EBA Proposes Standards Related to Standardized Credit Risk Approach
The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.