Basel III capital rules finalized by Federal Reserve: But much more to come for the big banks

July 2013
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Basel III capital rules finalized by Federal Reserve: But much more to come for the big banks

At a glance

This Regulatory Brief highlights the significant changes to the Basel III capital rule from its original proposal, and for the large banks, place the rule into the wider context of capital regulation yet to come.

On July 2nd, the Board of Governors of the Federal Reserve System (“the Board”) voted in favor of what had been billed as the most significant revisions to regulatory capital for banking organizations in years. This final Basel III capital rule (“Rule”) and its Preamble total some 970 pages.

Yet nearly nine months after the Rule’s comment period closed and 2600 comment letters later, there remain a number of significant questions still to be answered for the largest organizations. These institutions, at the center of the “too big to fail” debate, are seeing the bar continue to rise beyond the Rule, as Governor Dan Tarullo’s opening remarks at the July 2nd meeting highlighted additional capital regulations to come over the next six months.

In handicapping the results of the Rule, the following conclusions are evident:

  • The community banks won some significant concessions
  • The midsize banks appear to have benefitted from the deference to the community banks and were spared the more exacting requirements applied to the largest firms
  • The larger banks made little headway in softening the proposal and, in fact, face additional requirements
  • The insurance industry, including those proposed to be designated by the Financial Stability Oversight Council as systemically important, appears to have been spared for the moment as the Board continues to review the applicability of existing capital regimes

In this Regulatory Brief, we highlight the significant changes to the Rule from its original proposal, and for the large banks, place the Rule into the wider context of capital regulation yet to come.


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