Fed to hold open meeting on Basel III endgame proposal

Bloomberg News

The Federal Reserve Board of Governors will hold an open meeting next Thursday to discuss a forthcoming proposal related to the final implementation of the Basel III international regulatory framework.

The meeting will be held at 1 p.m. at the Martin Federal Reserve Board Building in Washington and streamed live on the Fed's website, according to a notice published by the Fed. 

A copy of the proposed rule — which is set to call for enhanced risk-capital requirements for all banks with $100 billion or more of total assets — will be published on the Fed's website roughly 20 minutes before the meeting, according to the notice.

The public meeting could provide a window into the internal debate over the capital rules being considered, some of which have been outlined in public remarks from individual board members. 

Fed Gov. Michelle Bowman has made the case that higher capital requirements are not necessary. Meanwhile, Vice Chair for Supervision Michael Barr — the architect behind the proposal — has said that other board members are entitled to their opinions and indicated that he will not aggressively pursue unanimity on the issue. The proposal needs only a simple majority of the six-member board to pass.

The new proposal will bring the U.S. into compliance with the so-called Basel III endgame. Barr outlined the changes that will be called for in the proposal earlier this month. They will include a more standardized approach to calculating credit, trading and operational risk, doing away with the ability for banks to craft their own models. 

AB - Policy & Regulation

Fed, FDIC, OCC commit to implementing Basel III endgame 'as soon as possible'

September 9, 2022 2:10 PM

Barr also called for changes in how banks calculate and report gains and losses on securities — known as accumulated other comprehensive income, AOCI. Banks with between $100 billion and $250 billion of assets could opt out of having AOCI counted against their regulatory capital requirements, but the proposed rule is likely to eliminate that exemption.

While the changes called for would subject midtier banks to regulatory requirements previously reserved for the largest institutions, Barr noted that the new capital requirements would weigh heaviest on the global systemically important banks.

"These changes would increase capital requirements overall, but I want to emphasize that they would principally raise capital requirements for the largest, most complex banks," Barr said in prepared remarks earlier this month.

The Fed estimates the changes would result in an average increase of capital of 2% across the affected banks, though the exact distribution of that increase will be determined by the specific provisions of the proposal. 

Assuming the proposed rule change discussed next week is approved by a majority of the Fed's board of governors, the meeting will mark the start of a monthslong review period in which members of the public can submit comments and questions. Regulators will then consider that input over the course of several months and adjust a final rule accordingly. 

Barr has noted several times in public remarks and testimony to Congress that any changes called for under a new rule would be phased in gradually over time. 

Along with the Fed's signoff, the proposed rule change will also need the backing of the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency. The heads of both agencies have already signaled their support for the types of changes outlined by Barr.

"Having strong capital requirements is important. It can help promote the economy, ensure a safe and sound banking system and that is in the interest of everyone," acting Comptroller of the Currency Michael Hsu told American Banker. "You don't want to be penny-wise and pound foolish with those requirements."