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.
It appears that the lobbying on behalf of community and regional banks had some success given the outcomes for those firms including: an additional year for implementation, maintenance of the current capital approach for risk weighting residential mortgages, the elimination of phase-out provisions for certain capital instruments (e.g., trust preferred securities), and the one time opportunity to opt out of Accumulated Other Comprehensive Income (“AOCI”).
In this Financial Services 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.