By Pete Schroeder
WASHINGTON (Reuters) -The Federal Reserve’s top regulatory official said on Monday that an upcoming rewrite of bank leverage rules is just a “first step” in reviewing “distorted” bank capital requirements.
Fed Vice Chair for Supervision Michelle Bowman said an upcoming meeting Wednesday to revisit bank leverage requirements is an initial foray in a broader set of reforms to ease bank capital requirements. Additional changes could include tweaks to a surcharge applied to large global banks, and what requirements should apply to larger regional banks.
“This proposal takes a first step toward what I view as long overdue follow-up to review and reform what have become distorted capital requirements,” she said in prepared remarks. “More work on capital requirements remains, especially to consider how they have evolved and whether changes in market conditions have revealed issues that should be addressed.”
The Fed is set to meet Wednesday to discuss a proposal to overhaul leverage requirements for banks that require them to set aside capital against assets regardless of their risk. The industry has argued it hinders their ability to intermediate Treasury markets, and was intended to serve as a backstop but has grown to become a binding constraint on some firms’ activities.
Discussing other future reforms, Bowman floated indexing some regulatory requirements, such as the so-called “G-SIB surcharge” for large global banks and various asset thresholds under which banks face stricter rules, to the overall economy. Such a change would allow banks to grow in size alongside the economy without necessarily bumping against stricter requirements, which had been a longstanding industry gripe.
However, she cautioned that reforms to fine-tune regulatory requirements are not meant to undermine the importance of robust bank capital to ensure they can withstand shocks.
“While issues around the use of leverage ratios require close examination, a solid capital foundation in the banking system is critical to support safety and soundness and financial stability,” she said, adding the upcoming leverage tweaks “should not be interpreted as a critique of the role of capital in a robust regulatory and supervisory framework.”
(Reporting by Pete Schroeder; Editing by Mark Porter)
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