MNI: Fed To Propose Modestly Looser Bank Capital Rules -Bowman

U.S. bank regulators will propose modestly looser capital requirements in coming weeks, Fed Vice Chair of Supervision Michelle Bowman said Thursday, after intense industry pushback forced the Federal Reserve to significantly scale back its Basel Endgame proposal and G-SIB surcharge reform. 

The new Basel proposal will result in a small increase in requirements for the largest banks, while revisions to the global systemically important bank surcharge would result in a modest decrease. "Together, these proposals would decrease the requirements by a small amount," Bowman said in remarks prepared for the Cato Institute.

The proposed revisions will maintain capital requirements above the 2019 rules and represent a "sensible recalibration reflecting the recent growth of regulatory capital requirements for the largest banks," she said. 

Smaller banks will see slightly larger reductions in capital requirements, changes intended to encourage these lenders to continue providing credit to U.S. households and businesses, she said. 

G-SIB SURCHARGE

The largest, most complex banks subject to the G-SIB surcharge will see their surcharge indexed to economic growth, remedying a 10-year period of escalation that diverged from the international method for setting G-SIB surcharges, Bowman said. 

The Fed also plans to correct "excessive requirements" associated with short-term wholesale funding, she said. That represents roughly 30% of the surcharge when it was originally intended to represent about 20%.

The proposed changes will also remove any requirement to deduct mortgage servicing assets from regulatory capital and instead assign a 250% risk weight to these assets while seeking public feedback about the appropriate risk weight, Bowman said. 

"This should reduce disincentives for participating in mortgage markets and servicing their mortgage originations, thereby addressing the mortgage activity migration to nonbanks over the past years." 

The draft proposals will be published for public comment in the coming weeks, Bowman said.