The federal banking agencies will issue “in the near term” a notice of proposed rulemaking on changes to the U.S bank capital framework to consider how best to incorporate the finalization of Basel III, the chairman of the board of the federal bank deposit insurance agency said Thursday.
Speaking at the Peterson Institute for International Economics in Washington, D.C., Federal Deposit Insurance Corp. (FDIC) Chairman Martin Gruenberg said a key consideration of revisions to the U.S. capital framework is which banks will be subject to the proposal. According to Gruenberg, the failures of Silicon Valley Bank of Santa Clara, Calif. (SVB), Signature Bank of New York, N.Y. (both in March), and First Republic Bank of San Francisco, Calif. (in May) are influencing that decision.
“For example, the agencies are considering whether to apply the proposed new rule to banks with assets over $100 billion,” Gruenberg said. “This consideration has certainly been influenced by the recent experience with three bank failures of institutions with assets between $100 billion and $250 billion. If we had any doubt that the failure of banks in this size category can have financial stability consequences, that has been answered by recent experience.”
Gruenberg said the “lesson to take away” is that banks in that asset-size category can pose genuine financial stability risk. He said the federal banking agencies need to review carefully the supervision of these institutions, particularly for interest rate risk in the current environment, and the prudential requirements that apply to them, including capital, liquidity, and loss absorbing resources for resolution.
He said community banks, subject to different capital requirements, would not be affected by the proposal, given their limited overall size and trading activities.
A final rule on the subject, and its impact on the banking system, Gruenberg indicated, is still a ways off. He said that would be likely be acted upon before the middle of next year (in other words, up to a year).
“Once a final rule is acted on, the implementation period once the rule takes effect would be several more years,” Gruenberg said. “In other words, the impact of the rule on the banking system is not likely to be felt for several years, and that impact would be phased in gradually.”