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Press Release
June 07, 2012

Federal Reserve Board invites comment on
three proposed rules intended to help ensure
banks maintain strong capital positions
For immediate release
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The Federal Reserve Board on Thursday invited comment on three
proposed rules intended to help ensure banks maintain strong capital
positions, enabling them to continue lending to creditworthy households
and businesses even after unforeseen losses and during severe
economic downturns.
Taken together, the proposals would establish an integrated regulatory
capital framework that addresses shortcomings in regulatory capital
requirements that became apparent during the recent financial crisis.
The proposed rule would implement in the United States the Basel III
regulatory capital reforms from the Basel Committee on Banking
Supervision and changes required by the Dodd-Frank Wall Street
Reform and Consumer Protection Act.
"Capital is important to banking organizations and the financial system
because it acts as a financial cushion to absorb a firm's losses," Federal
Reserve Chairman Ben Bernanke said. "With these proposed revisions,
banking organizations' capital requirements should better reflect their
risk profiles, improving the resilience of the U.S. banking system in times
of stress, thus contributing to the overall health of the U.S. economy."
The rulemaking was divided into three proposed rules to minimize
burden on smaller and mid-sized banking organizations and to allow

firms to focus on the aspects of the proposed revisions that are most
relevant to them. The Board is publishing all of the proposed changes to
the current regulatory capital rules at the same time so that banking
organizations and the general public can understand the overall impact
of the proposals when drafting comments.
"While rigorous capital requirements are not a sufficient condition for a
strong, resilient financial system, they are surely a necessary one," Gov.
Daniel Tarullo said. The "rules before us this afternoon mark an
important milestone on the road to a set of strong, complementary
capital standards for banking organizations."
The first notice of proposed rulemaking (NPR), titled Regulatory Capital
Rules: Regulatory Capital, Implementation of Basel III, Minimum
Regulatory Capital Ratios, Capital Adequacy, and Transition Provisions,
would apply to all depository institutions, bank holding companies with
total consolidated assets of $500 million or more, and savings and loan
holding companies (collectively, banking organizations). Consistent with
the international Basel framework, this NPR would:
increase the quantity and quality of capital required by proposing
a new minimum common equity tier 1 ratio of 4.5 percent of riskweighted assets and a common equity tier 1 capital conservation
buffer of 2.5 percent of risk-weighted assets, and raising the
minimum tier 1 capital ratio from 4 percent to 6 percent of riskweighted assets;
revise the definition of capital to improve the ability of regulatory
capital instruments to absorb losses;
establish limitations on capital distributions and certain
discretionary bonus payments if additional specified amounts, or
"buffers," of common equity tier 1 capital are not met; and
introduce a supplementary leverage ratio for internationally active
banking organizations.
The Basel III proposal would also revise the Board's prompt corrective
action framework by incorporating the new regulatory capital minimums
and updating the definition of tangible common equity. Prompt corrective
action is an enforcement framework used by supervisors to constrain the
activities of banking organizations based on the level of regulatory
capital.
The second NPR, titled Regulatory Capital Rules: Standardized
Approach for Risk-weighted Assets; Market Discipline and Disclosure
Requirements, also would apply to all banking organizations. This NPR
would revise and harmonize the Board's rules for calculating riskweighted assets to enhance risk sensitivity and address weaknesses
that have been identified over the past several years. Banks and
regulators use risk weighting to assign different levels of risk to different
classes of assets--riskier assets require higher capital cushions and less
risky assets require smaller capital cushions.
Banking organizations that are not actively internationally or are not
subject to the market risk rules would only need to review the first two
NPRs.

The third NPR, titled Regulatory Capital Rules: Advanced Approaches
Risk-based Capital Rule; Market Risk Capital Rule, would apply to
banking organizations that are subject to the banking agencies'
advanced approaches rule or to their market risk rule.1 This NPR would
enhance the risk sensitivity of the current rule for internationally active
firms to better address counterparty credit risk and interconnectedness
among financial institutions. It also would apply the advanced
approaches rule and market risk capital rule to savings and loan holding
companies that meet the relevant size, foreign exposure, or trading
activity thresholds. As part of the restructuring of the capital rules into an
integrated framework, this NPR incorporates the final market risk rule
that was approved Thursday by the Board into the framework.
The Federal Reserve requests comments on the three NPRs by
September 7, 2012.

Federal Register Notices
Regulatory Capital Rules: Regulatory Capital, Implementation of
Basel III, Minimum Regulatory Capital Ratios, Capital Adequacy,
Transition Provisions, and Prompt Corrective Action PDF | HTML
Regulatory Capital Rules: Standardized Approach for Riskweighted Assets; Market Discipline and Disclosure Requirements
PDF | HTML
Regulatory Capital Rules: Advanced Approaches Risk-based
Capital Rule; Market Risk Capital Rule PDF | HTML
Questions and Answers -- Proposed Rulemakings for an Integrated
Regulatory Capital Framework (PDF)
Board Votes
Comment: Submit

| View

For media inquiries, call 202-452-2955
Related Press Releases
Federal Reserve Board extends comment period on three
proposed capital rules rulemakings until October 22, 2012
(August 8, 2012)
Agencies provide guidance on regulatory capital rulemakings
(November 9, 2012)

1. Advanced approaches banking organizations generally are those with
consolidated total assets of at least $250 billion or consolidated total onbalance sheet foreign exposures of at least $10 billion. Market risk
banking organizations generally are those with aggregate trading assets
and trading liabilities equal to at least 10 percent of quarter-end total
assets or $1 billion. Return to text

Comments: Submit | View

Last Update: June 07, 2012

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