In a wide ranging speech on a “fresh look” to regulation and supervision, vice chair for Supervision Michelle Bowman said that in addition to considering potential changes to leverage ratio requirements and stress testing, a conference being convened in July will also include a discussion of potential reforms to the global systemically important bank (GSIB) surcharge and the Basel III capital requirements.
“The Federal Reserve has long acknowledged that leverage ratios are intended to act as a ‘backstop’ to risk-based capital requirements. When leverage ratios become the binding capital constraint at an excessive level, they can create market distortions. This is especially true in the case of the enhanced supplementary leverage ratio (eSLR) which is applicable to the largest banks,” she said.
She outlined what was required to improve supervision and regulation in the future, addressing: (i) enhancing supervision to more effectively and efficiently meet the Fed’s safety and soundness goals; (ii) reviewing and reforming the capital framework to ensure that it is appropriately designed and calibrated; (iii) reviewing regulations and information collections to ensure that this framework remains viable; and (iv) considering approaches to ensure the applications process is transparent, predictable, and fair.