Fed bank capital, liquidity proposal follows Basel

Tue Dec 20, 2011 4:31pm EST
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By Dave Clarke

WASHINGTON (Reuters) - The Federal Reserve proposed new capital and liquidity rules for the largest U.S. banks that would roll out in two phases and not likely go further than international standards.

The plan issued on Tuesday closely follows statements the Fed has made in recent weeks to calm Wall Street concerns that U.S. standards may be more aggressive than those from other nations, putting U.S. banks at a disadvantage.

The Fed said that both the capital and liquidity requirements in last year's Dodd-Frank financial oversight law would be implemented in two phases.

The first phase would rely on policies already issued by the Fed, such as the capital stress test plan it released in November.

That stress test plan will require U.S. banks with more than $50 billion in assets to show they can meet a Tier 1 common risk-based capital ratio of 5 percent during a time of economic stress.

The second phase for both capital and liquidity would be based on the Fed's implementation of the Basel III international bank regulatory agreement.

That standard brings the Tier 1 common risk-based capital ratio requirement to 7 percent, plus a surcharge of up to 2.5 percent for the most complex firms.

"They're basically following the guidelines from Basel on the capital buffer. There were really no big surprises," said Gerard Cassidy, bank analyst at RBC Capital Markets.   Continued...