Fed signs off on heightened capital proposal for banks

{mosads}Banks, which had pushed for more lax requirements on capital, will now have 90 days to make their case in comments. The Fed’s fellow banking regulators, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency, are expected to similarly sign off on the proposal next week.

Under the proposal, banks would be require to hold top-quality capital that is equal to seven percent of assets that present risk to the bank, which is roughly triple what is currently required.

Bigger banks would face heightened requirements under the rules. Banks with over $50 billion in assets would have to disclose more information about their holdings, and banks with over $100 billion in assets would be required to hold even more capital as a cushion.

The package also includes a requirement that bank cannot rely on credit ratings to evaluate the riskiness of their portfolio. The requirement implements a Dodd-Frank provision directing regulators to no longer rely on those ratings, after raters’ reputations took a hit for failing to sniff out risky mortgage assets before the financial crisis.

Internationally active banks with substantial trading activity would have to meet additional requirements, including higher capital set aside as a counterbalance to holdings in international derivatives.