Bank Regulation

New Fed Rules Lower Asset Requirements For Banks

New Fed Rules Lower Liquidity And Capital Requirements For Most Banks

The United States Federal Reserve has passed new rules which lower the liquidity and capital requirements for most banks, as well as easing other restrictions.

The Financial Times is reporting that Federal Reserve Chair Jay Powell announced the new rules on Thursday (Oct. 10), and he called it bank “tailoring,” which means different banks will have different standards based on their size and assets.

“The rules maintain the fundamental strength and resiliency that has been built into our financial system over the past decade,” Powell said. “Congress and the American people rightly expect us to achieve an effective and efficient regulatory regime that keeps our financial system strong and protects our economy, while imposing no more burden than is necessary.”

There was a voice of dissent to the decision. Board member Lael Brainard opposed Powell’s decision.

“Today’s actions go beyond what is required by law and weaken the safeguards at the core of the system before they have been tested through a full cycle,” she said. “At a time when the large banks are profitable and providing ample credit, I see little benefit to the banks or the system from the proposed reduction in core resilience that would justify the increased risk to financial stability in the future.”

The new rules mean that only the biggest banks won’t be allowed to lower capital requirements. Smaller banks can now have 0.6 percent less in capital and 2 percent less in liquid assets. 

Also, some larger regional banks won’t have to undergo previous regulations on stress tests anymore. Some banks won’t have to model what will happen under an “adverse” scenario. However, all banks will still have to model the consequences of a “very adverse” scenario.

Because of the new rules, foreign banks won’t have to comply with the most stringent requirements, and they’ll only have to have enough reserves to cover at the most 25.5 days of operations, instead of 30. 

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