Fed approves capital rules implementing Basel III

126px-US-FederalReserveSystem-Seal.svgThe Federal Reserve approved on Tuesday long-awaited regulatory capital rules that were designed to strengthen American banks’ regulatory capital levels and bring the U.S. into compliance with Basel III rules.

The OCC and FDIC are expected to announce their approval of the rules no later than July 9. The final rules will replace the agencies’ risk-based capital rules, advanced approaches rule, market risk rule and leverage rules, Lexology reports.

“In finalizing the new capital rules, the federal banking agencies are taking an important step to protect the banking system from future financial crises,” Thomas Curry, the head of the OCC, said. “I’m pleased that we were able to agree on a rulemaking that not only improves the quantity and quality of capital for banks of all sizes, but does so in a way that minimizes the burden on community banks. The final rule, which I intend to sign next week, incorporates a number of changes designed specifically to ease unnecessary burden on community banks and to respond to the many concerns we heard from them and others through our comment process while preserving the benefits to the financial system that come from higher quality and quantity of capital.”

Big banks would be required to comply with Basel rules beginning next year, while smaller banks would have an additional year to prepare to meet the requirements, according to The Hill.

Under the final rule, minimum capital levels have been increased in terms of quality and quantity, and large global institutions would have to comply with a supplementary limit on leverage to account for dangers that could exist off of balance sheets.

“Getting to this final rule has not been an easy process,” Curry said. “It required a lot of hard work on the part of many people at the three federal banking agencies, and it certainly benefitted from the significant input and effort provided by a multitude of commenters. But it has been worth it. These new capital standards will go a long way to shoring up the banking system against future financial shocks and shielding the American taxpayer from ever again having to rescue some of the largest financial institutions in times of economic stress.

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