The Federal Reserve held a conference that included industry veterans, academics, and current and former policymakers to consider all elements of the capital framework in concert, rather than look at each in isolation. The US bank capital framework includes risk-based capital requirements, leverage requirements, the surcharge for the largest and most complex banks, and stress tests.
“We need to ensure that all the different pieces of the capital framework work together effectively. Doing so will help maintain a safe, sound, and efficient banking system, for the benefit of the people we serve,” said Fed chair Jerome Powell, in a speech. “We need our large banks to be well capitalized and to manage their key risks well. And we need large banks to be free to compete with one another, with nonbank financial firms, and with banks in other jurisdictions to provide capital and support economic growth.”
Reuters noted that “much of the conversation was aimed at how remaining rules could be changed to ease bank burdens, including by advancing a new version of the Basel framework that minimizes the capital impact of new risk measurements.”
Sheara Fredman, chief accounting officer and controller at Goldman Sachs, called for a Basel III proposal that appropriately balances safety and soundness with economic growth, and one that isn’t crafted in isolation of other components of the capital framework, according to Banking Dive.
Wells Fargo Securities analyst Mike Mayo labeled the regulatory system today “too confusing, too constraining and too costly.” The framework confuses investors, bank boards and probably some regulators, he said, cited by Banking Dive. As for Basel III implementation, Mayo said “Get it done, get it done, get it done, and if you don’t, then the cost of capital for banks would be higher than it otherwise would be.”