Fed is receiving comments it is overestimating risk with new capital proposal, top supervisor will say

Increases in capital requirements for large banks that may “overestimate the risk” of certain activities is some of the feedback the Federal Reserve has received, so far, to its proposal for the new rules, the top supervisor for the agency will say in testimony before a Senate panel Tuesday.

According to the remarks released Monday for Federal Reserve Board Vice Chair Michael Barr for a hearing before the Senate Banking Committee, the agency has already heard concerns about overestimations through the comment period on its capital proposal for large banks regarding mortgage lending, tax credit investments, trading activities, and operational risk.

“We welcome all comments that provide the agencies with additional data and perspectives to help ensure the rules accurately reflect risk,” Barr will tell the committee.

Barr’s testimony refers to the capital proposal made in July raising capital standards for banks with $100 billion or more in assets. The proposal also requires the banks to hold long-term debt. Comments are due Jan. 16 on the proposal, which is intended to implement the so-called “Basel III endgame.”

Federal Reserve Board Vice Chair for Supervision Michael S. Barr Nov. 14 testimony before the Committee on Banking, Housing, and Urban Affairs, U.S. Senate, Washington, D.C.