FED seeks comment on proposal to simplify its capital rules for large banks, while preserving strong capital levels that would maintain the ability to lend under stressful conditions. The proposal is to introduce a stress capital buffer (SCB), which would in part integrate the forward-looking stress test results with the non-stress capital requirements of FED. The proposed rule amends regulatory capital, capital plan, and stress test rules. This proposal also involves changes to the reporting forms and instructions for FR Y-9C and FR Y-14A. Comments on the proposal must be received by June 25, 2018.
SCB would be sized through the stress test and would be part of a firm's ongoing capital requirements, producing a tailored and risk-sensitive capital regime for large banking organizations. With the proposed changes, large firms would be required to meet 14 capital-related requirements, instead of the current 24. For example, if a firm has a common equity tier 1 capital ratio of 9% and it declines to 6% under the hypothetical severely adverse scenario of the stress test, its SCB for the coming year would be 3%. The SCB would then be added to the minimum 4.5% common equity capital requirement, which remains unchanged. This would result in a 7.5% common equity capital requirement for the coming year. If the firm is a global systemically important bank (G-SIB), its G-SIB surcharge—an additional cushion of capital that is held by the largest banks—would be added to the SCB. Additionally, four quarters of planned dividends would be added to the SCB.
FED estimates that, relative to the current requirements, the proposed changes would generally maintain or somewhat increase the amount of capital required for G-SIBs and generally decrease modestly the amount of capital required for most non-G-SIBs. However, the SCB of a firm will vary in size throughout the economic cycle, depending on the risk exposures of the firm and the severity of the hypothetical stress test scenarios. No firm is expected to need to raise additional capital as a result of this proposal. The FED proposal would also modify several assumptions in the CCAR process to better align them with a firm's expected actions under stress. Currently, bank holding companies with more than USD 50 billion in total consolidated assets undergo annual supervisory stress tests run by FED, known as the Comprehensive Capital Analysis and Review (CCAR). CCAR requires firms to demonstrate their ability to continue to lend under hypothetical adverse economic conditions. These firms are also subject to non-stress capital requirements.
- Press Release
- Staff Memo on Proposed Rule (PDF)
- Federal Register Notice
- Form FR Y-9C (PDF)
- Form FR Y-14A (PDF)
- Instructions for FR Y-9C (PDF)
- Instructions for FR Y-14A (PDF)
- Instructions for FR Y-14Q (PDF)
Comment Due Date: June 25, 2018
Keywords: Americas, US, Banking, Stress Capital Buffer, Regulatory Capital, CCAR, Stress Testing, Large Banks, Reporting, FED
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