Big banks will need to hold more capital to guard against risk under new Fed proposal
The nation’s biggest and most complex banks will need to hold additional capital on their balance sheets under an initial proposal by the Federal Reserve designed to help banks better withstand risks to their businesses that go beyond a recession or fi...
NEW YORK — The nation's biggest and most complex banks will need to hold additional capital on their balance sheets under an initial proposal by the Federal Reserve and FDIC, designed to help banks better withstand risks to their businesses that go beyond a recession or financial crisis.
The proposal released Thursday, boiled down from highly complex and technical nuances, roughly means that Wall Street collectively will have to set aside tens of billions of dollars to meet the Fed's new rules. Banks that rely more on fee income will see a greater impact than those holding bonds and other securities.
The main question addressed by the proposal is how banks over $100 billion in assets should value what are known as risk-weighted assets on their balance sheet when determining how much of a buffer the bank should have to withstand market gyrations and economic fluctuations. Risk-weighed assets have their origin in what is known as the Basel Accords, an international agreement among banks, whose most recent iteration known as Basel III came after the 2008 financial crisis.
Capital — which in its most simplistic form is a bank's assets minus their liabilities — is ultimately the armor a bank needs to protect itself. Without it, a bank fails. All policy discussions about capital often boil down to how thick that armor should be and what it should, or shouldn't, protect against.
“Capital is foundational to the safety and soundness of the banking system, and capital
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