Fed relaxes capital requirements for some large banks

The Federal Reserve has finalized a rule relaxing the capital and stress-testing requirements for many large regional banks in 2017.

The final rule removes the qualitative assessment of the Federal Reserve’s Comprehensive Capital Analysis and Review for large and noncomplex firms, which include bank holding companies and U.S. intermediate holding companies of foreign banking organizations. These include institutions with total consolidated assets between $50 billion and $250 billion, total nonbank assets of less than $75 billion, and are not identified as global systemically important banks, according to a Jan. 30 Federal Reserve news release.

The final rule becomes effective 30 days after publication in the Federal Register.

Under the original proposed rule, a firm also needed to have less than $10 billion in foreign exposure to be removed from the qualitative portion of CCAR. However, in response to comments, the final rule eliminates that criterion. Like the proposed rule, the final rule also reduces certain reporting requirements for large and noncomplex firms, the release stated.

Large and noncomplex firms still will be required to meet their capital requirements under stress as part of CCAR’s quantitative assessment and will be subject to regular supervisory assessments that examine their capital planning processes, according to the release. The largest and most complex banks will remain subject to both the qualitative and quantitative components of CCAR, the release stated.

The Federal Reserve’s qualitative assessment evaluates the strength of each firm’s capital planning process, while the quantitative assessment evaluates each’s firm’s capital adequacy based on hypothetical scenarios of severe economic and financial market stress, according to the release.

In a Jan. 30 blog post, the American Bankers Association credited the Federal Reserve for addressing many issues the ABA raised in its comment letter about the original proposed rule.

“The Fed offered additional clarity on the supervisory review process, specifically that it plans to conduct its review ‘in a manner similar to existing supervisory programs,’ including a first-day letter in advance and sufficient lead time to provide information and additional findings,” the ABA post stated. “The Fed also said it will provide large and non complex firms with several months advance notice of focus areas in the capital plan.

“While welcoming this refinement of the stress test program for those banks affected by the rule, ABA will continue to encourage the Federal Reserve to consider expanding those reforms to other banks,” the post stated.