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
- Press Release
- Federal Register Notice
- Board Memo (PDF)
- Statement by Randal Quarles
- Statement by Lael Brainard
- CCAR 2020 Summary Instructions (PDF)
Effective Date: May 18, 2020
Keywords: Americas, US, Banking, Stress Capital Buffer, Regulatory Capital, CCAR, Stress Testing, Large Banks, Reporting, SCB, FED
Featured Experts

Laurent Birade
Advises U.S. and Canadian financial institutions on risk and finance integration, CCAR/DFAST stress testing, IFRS9 and CECL credit loss reserving, and credit risk practices.

María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer

Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Previous Article
ESMA Registers Beyond Ratings SAS as a Credit Rating AgencyNext Article
APRA Releases Details of Superannuation HeatmapRelated Articles
BOE Sets Out Its Thinking on Regulatory Capital and Climate Risks
The Bank of England (BOE) published a working paper that aims to understand the climate-related disclosures of UK financial institutions.
OSFI Finalizes on Climate Risk Guideline, Issues Other Updates
The Office of the Superintendent of Financial Institutions (OSFI) is seeking comments, until May 31, 2023, on the draft guideline on culture and behavior risk, with final guideline expected by the end of 2023.
BIS Paper Examines Impact of Greenhouse Gas Emissions on Lending
BIS issued a paper that investigates the effect of the greenhouse gas, or GHG, emissions of firms on bank loans using bank–firm matched data of Japanese listed firms from 2006 to 2018.
HMT Mulls Alignment of Ring-Fencing and Resolution Regimes for Banks
The HM Treasury (HMT) is seeking evidence, until May 07, 2023, on practicalities of aligning the ring-fencing and the banking resolution regimes for banks.
BCBS Report Examines Impact of Basel III Framework for Banks
The Basel Committee on Banking Supervision (BCBS) published results of the Basel III monitoring exercise based on the June 30, 2022 data.
PRA Consults on Prudential Rules for "Simpler-Regime" Firms
Among the recent regulatory updates from UK authorities, a key development is the first-phase consultation, from the Prudential Regulation Authority (PRA), on simplifications to the prudential framework that would apply to the simpler-regime firms.
DNB Publishes Multiple Reporting Updates for Banks
DNB, the central bank of Netherlands, updated the list of additional reporting requests and published additional data quality checks and XBRL-Formula linkbase documents for the first quarter of 2023.
NBB Sets Out Climate Risk Expectations, Issues Reporting Updates
The National Bank of Belgium (NBB) published a communication on climate-related and environmental risks, issued an update on XBRL reporting
EBA Updates Address Securitization Standards and DGS Guidelines
The European Banking Authority (EBA) published the final draft of the regulatory technical standards that set out conditions for assessment of homogeneity of the underlying exposures in simple, transparent, and standardized (STS) securitizations.
FSB Publishes Letter to G20, Sets Out Work Priorities for 2023
The Financial Stability Board (FSB) published a letter intended for the G20 Finance Ministers and Central Bank Governors, highlighting the work that FSB will take forward under the Indian G20 Presidency in 2023