The Federal Reserve finalized Basel III rules on Tuesday that establish stronger capital requirements for banks but provide some regulatory relief for regional and small banks.
The final rule does not apply to credit unions. In February, Larry Fazio, the director of examination and insurance at the National Credit Union Administration, said that while credit unions would likely not be subject to Basel III requirements, they could end up with “Basel lite,” a simplified Basel framework.
Basel III is modeled on a risk-based capital system, under which credit unions do not currently operate. The Fed coordinated the final rule with the OCC and FDIC, both of which are expected to consider the rule by July 9.
The Basel III phase-in will not begin until January 2015 for smaller institutions, while the phase-in period for bigger institutions will take effect this coming January.
Fed officials said tighter regulations could come as soon as the fall for the nation’s largest banks, Los Angeles Times reports.
“What they’re really trying to get at is to force the biggest banks to downsize,” Bert Ely, an independent banking consultant, said, according to Los Angeles Times.
More than 95 percent of banks with less than $10 billion in assets and all banks with more than that are required to meet a new capital requirement within 5.5 years. The new rules eliminate complex mortgage risk calculations for smaller banks.
Frank Keating, the head of the American Bankers Association, said the standards are not perfect but “bring us closer to optimal capital rules,” Los Angeles Times reports.