One of the last times major bankers met with the Fed to express their concerns about bank’s adoption of Basel III capital rules, it was basically a one-way conversation. That is, bankers expressed their concerns and the Fed just sat there, according to reports.
But apparently the Fed still wants to hear people’s concerns about its series of notices of proposed rulemakings (NPR) on its Basel III implementation. On Wednesday the central bank announced that it has extended the comment period to October 22, 2012, from a previous September 7 date, on the three NPRs that will ultimately “revise and replace current capital rules.”
Those three notices are 1) Regulatory Capital Rules: Regulatory Capital, Implementation of Basel III, Minimum Regulatory Capital Ratios, Capital Adequacy, and Transition Provisions, and will apply to all entities with total consolidated assets of $500mn or more, as well as savings and loan holding companies; 2) Regulatory Capital Rules: Standardized Approach for Risk-weighted Assets; Market Discipline and Disclosure Requirements, also would apply to all banking organizations. And finally 3) Regulatory Capital Rules: Advanced Approaches Risk-based Capital Rule; Market Risk Capital Rule, would apply to banking organizations that are subject to the banking agencies’ advanced approaches rule or to their market risk rule.
If the NPRs becomes law, banks will have to maintain Basel III levels of common equity equal to 4.5 percent of their risk-weighted assets, plus an additional 2.5 percent capital conservation buffer, also made up of common equity. This puts the total at 7 percent of common-equity cushion. Currently common-equity standards are around 2 percent. But perhaps banks should feel lucky Fed Governor Daniel Tarullo is just implementing the rules (albeit with seeming iron fist) instead of making them. Last year Gov. Tarullo, a former law professor, member of the Clinton Administration and a former Justice Department attorney suggested a 14 percent capital buffer (see related story here).
The Fed said the comment period was extended to allow interested persons more time to understand, evaluate, and prepare comments on the proposals. Originally, comments were due by September 7, 2012.