Bank Capital Requirements

There is broad agreement that stronger capital requirements will give us a much more resilient financial system and tame risk taking by forcing financial institutions to put more of their own ‘skin in the game’. This will help reduce volatility, sustain growth, and keep employment high. While we applaud recent efforts by US and international regulators to raise capital requirements for banks (for example Basel III), these rules should be strengthened and simplified. Regulators should also place greater priority on constraining leverage among both bank and non-bank institutions that might pose a systemic risk.

The Basel III proposed rule is a good and much needed improvement with its emphasis on common equity capital, the most loss absorbing component of capital. However, the implementation timetable is extraordinarily long. The largest U.S. banking organizations have consistently said they already meet the Basel III requirements so why wait?

On October 15, 2013, the Systemic Risk Council filed a comment letter to bank regulators on the proposed enhanced supplementary leverage ratio for large bank holding companies and their insured depository institution subsidiaries.

On June 7, 2013, the Systemic Risk Council sent a comment letter to the Federal Reserve urging the Fed to require that large, complex financial institutions (LCFIs) issue long-term, unsecured debt to provide a buffer sufficient to facilitate an orderly resolution of, and protect taxpayers against, an LCFI failure.

On April 5, 2013, the Systemic Risk Council sent a comment letter to the Federal Reserve in support of the Federal Reserve’s proposed rule regarding the supervision of foreign banking and nonbank financial operations (FBOs) in the United States.

On October 4, 2012, the Systemic Risk Council sent a comment letter to federal banking regulators with suggestions for strengthening and improving proposed risk-based capital requirements.