24 July 2023
The Federal Reserve Board of Governors has scheduled a contentious open meeting next Thursday to debate a controversial proposal pertaining to the final execution of the Basel III international regulatory framework.
The meeting is set to occur at 1 p.m. at the Martin Federal Reserve Board Building in Washington and will be broadcasted live on the Fed’s website, according to a published notice by the Fed.
The contentious draft of the rule, which is expected to demand increased risk-capital requisites for all banks with total assets exceeding $100 billion, will be uploaded on the Fed’s website about 20 minutes prior to the meeting, as stated in the notice.
This public meeting could expose the internal dispute over the capital rules under consideration, some of which have been hinted at through public comments made by individual board members.
Fed Governor Michelle Bowman has disputed the need for higher capital requirements, casting doubt on the proposal.
In contrast, Vice Chair for Supervision Michael Barr, the person responsible for this divisive proposal, has conceded that other board members have a right to their opinions and subtly suggested that he won’t be actively seeking consensus on this matter. To get the proposal approved, only a simple majority from the six-member board is required.
The proposed changes would push the United States towards adherence with the Basel III international standards, often referred to as the Basel III endgame. Barr highlighted the planned alterations earlier this month, including the implementation of a more standardized method for calculating credit, trading, and operational risk, stripping banks of their ability to design their own models.
Barr has also advocated for alterations in how banks compute and disclose gains and losses on securities, commonly known as accumulated other comprehensive income, or AOCI. While banks with assets ranging between $100 billion and $250 billion can currently choose not to count AOCI against their regulatory capital requirements, this exemption is anticipated to be scrapped by the proposed rule.
Although these modifications would impose regulatory demands formerly applied only to the most prominent institutions onto mid-tier banks, Barr acknowledged that the new capital requirements would place the heaviest burden on the global systemically important banks.