Featured Product

    FED Simplifies Capital Rules, Finalizes Stress Capital Buffer Proposal

    FED adopted a final rule that simplifies capital rules for large banks and establishes a stress capital buffer, or SCB, requirement. The final rule makes amendments to the capital rule, capital plan rule, stress test rules, and Stress Testing Policy Statement. The final rule also requires changes to the reporting forms and instructions for FR Y-9C and FR Y-14A. The rule would become effective on May 18, 2020, with the first stress capital buffer requirement of a firm effective on October 01, 2020. The final rule would apply to the Comprehensive Capital Analysis and Review (CCAR) in 2020. FED also published statements by Vice Chair for Supervision Randal K. Quarles and Governor Lael Brainard, with both stating their reasons for the support of this final rule. Additionally, FED released the instructions for the 2020 CCAR cycle. The instructions confirm that 34 banks will participate in the test this year. Results will be released by June 30.

    The stress capital buffer integrates the stress test results of FED with its non-stress capital requirements. As a result, required capital levels for each firm would more closely match its risk profile and likely losses as measured via the stress tests. Under the final rule, FED will use the results of its supervisory stress test to establish the size of a firm’s stress capital buffer requirement, which replaces the static 2.5% of risk-weighted assets component of a firm’s capital conservation buffer requirement. Through the integration of the capital rule and CCAR, the final rule would remove redundant elements of the current capital and stress testing frameworks that currently operate in parallel rather than together, including the CCAR quantitative objection and the assumption that a firm makes all capital actions under stress. The final rule applies to bank holding companies and U.S. intermediate holding companies of foreign banking organizations that have USD 100 billion or more in total consolidated assets.

    The total number of regulatory capital requirements applicable to large firms would be reduced from 13 to 8 under the final rule, simplifying the capital framework. In April 2018, FED invited comment on a proposal to simplify its capital framework by integrating ongoing, non-stress capital requirements and the stress test-based capital requirements under the CCAR through the establishment of a stress capital buffer requirement. The final rule includes the following changes from the proposal:

    • The final rule does not include a stress leverage buffer requirement. Firms would continue to be subject to ongoing, non-stress leverage ratio requirements. This change would result in a simpler capital framework and maintain leverage capital requirements as an appropriate backstop to risk-based capital requirements.
    • The final rule would allow firms to increase their planned capital distributions in excess of the amount included in their capital plans without prior approval of FED. Such firms would instead be subject to automatic distribution limitations if their capital ratios fell below the buffer requirements, which would include the stress capital buffer requirement.
    • In light of the integration of non-stress capital requirements and the stress test-based capital requirements under CCAR, the final rule would revise the definition of eligible retained income in the non-stress capital requirements to make the automatic limitations on a firm’s distributions more gradual as the firm’s capital ratios decline.
    • A material business plan change would generally not be incorporated into the calculation of the stress capital buffer requirement. This change would reduce the number of assumptions needed to calculate the stress capital buffer requirement.

    The final rule would preserve strong capital requirements for large firms. Based on stress test data from 2013 to 2019, the draft final rule is estimated to result in largely unchanged common equity tier 1 capital requirements, on average, for firms subject to the rule. On average, the staff estimates that the rule would increase common equity tier 1 capital requirements for global systemically important bank holding companies and decrease requirements for firms subject to Category II through IV standards. 

     

    Related Links

    Effective Date: May 18, 2020

    Keywords: Americas, US, Banking, Stress Capital Buffer, Regulatory Capital, CCAR, Stress Testing, Large Banks, Reporting, SCB, FED

    Featured Experts
    Related Articles
    News

    EBA Publishes Phase 2 of Technical Package on Reporting Framework 2.10

    EBA published phase 2 of the technical package on the reporting framework 2.10, providing the technical tools and specifications for implementation of EBA reporting requirements.

    July 10, 2020 WebPage Regulatory News
    News

    FASB Proposes to Delay Implementation of Insurance Contracts Standard

    FASB issued a proposed Accounting Standards Update that would grant insurance companies, adversely affected by the COVID-19 pandemic, an additional year to implement the Accounting Standards Update No. 2018-12 on targeted improvements to accounting for long-duration insurance contracts, or LDTI (Topic 944).

    July 09, 2020 WebPage Regulatory News
    News

    APRA Updates Regulatory Approach to Loan Deferrals Amid COVID Crisis

    APRA updated the regulatory approach for loans subject to repayment deferrals amid the COVID-19 crisis.

    July 09, 2020 WebPage Regulatory News
    News

    BCBS and FSB Set Out Recommendations for Benchmark Transition

    BCBS and FSB published a report on supervisory issues associated with benchmark transition.

    July 09, 2020 WebPage Regulatory News
    News

    IAIS Sets Out Recommendations for Benchmark Transition for Insurers

    IAIS published a report on supervisory issues associated with benchmark transition from an insurance perspective.

    July 09, 2020 WebPage Regulatory News
    News

    ESMA Updates Reporting Manual on European Single Electronic Format

    ESMA updated the reporting manual on the European Single Electronic Format (ESEF).

    July 09, 2020 WebPage Regulatory News
    News

    EBA Calls on Resolution Authorities to Consider Impact of COVID Crisis

    EBA published a statement on resolution planning in light of the COVID-19 pandemic.

    July 09, 2020 WebPage Regulatory News
    News

    BCBS Finalizes Revisions to Credit Valuation Adjustment Risk Framework

    BCBS Finalizes Revisions to Credit Valuation Adjustment Risk Framework

    July 08, 2020 WebPage Regulatory News
    News

    ECB Guideline on Materiality Threshold for Credit Obligations Past Due

    ECB published a guideline (2020/97), in the Official Journal of European Union, on the definition of materiality threshold for credit obligations past due for less significant institutions.

    July 08, 2020 WebPage Regulatory News
    News

    FED Temporarily Revises FR Y-14 With Respect to PPP and CARES Act

    FED temporarily revised the capital assessments and stress testing reports (FR Y-14A/Q/M) to implement the changes in response to the COVID-19 pandemic.

    July 08, 2020 WebPage Regulatory News
    RESULTS 1 - 10 OF 5458