The Federal Reserve’s proposal to simplify capital rules for large banks through a “stress capital buffer” (SCB) is open for comments until June 25, opening a 60-day comment period for the plan.
If adopted as proposed, the new rule would become effective Dec. 31, 2018. A firm’s first stress capital buffer and stress leverage buffer requirements would generally be effective on Oct. 1, 2019. A firm’s stress buffer requirements would be effective on Oct. 1 of each year, the proposal states, and remain in effect until Sept. 30 of the following year, “unless the firm received updated stress buffer requirements from the (Federal Reserve) Board.”
Under the proposal, announced April 10 by the Fed (but only ready for publication in the Federal Register Tuesday through its public inspection desk), the new SCB would in part integrate forward-looking stress test results with the Fed’s non-stress capital requirements.
The result, according to the Fed, would produce capital requirements for large banking organizations that are firm-specific and risk-sensitive. The Fed has also emphasized that no firm is expected to need to raise additional capital as a result of this proposal (which, the Fed noted, would not apply to any community bank, any bank holding company with total consolidated assets of less than $50 billion, or to any state member bank or savings and loan holding company).
The new SCB, according to the Fed, would be sized through the stress test, becoming part of the financial firm’s ongoing capital requirements. Large firms would be required to meet 14 capital-related requirements under the proposal, instead of the current 24.
Now, bank holding companies with more than $50 billion in assets undergo annual stress tests known as Comprehensive Capital Analysis and Review [CCAR], which require financial firms to demonstrate an ability to continue to lend under hypothetical, adverse conditions. Non-stress capital requirements are also required, the Fed noted.