FOR IMMEDIATE RELEASE: June 26, 2018
CONTACT: Barbara Hagenbaugh, (202) 457-8783
WASHINGTON, D.C. – U.S. bank regulators should take additional steps to develop a more efficient capital framework that allows financial institutions to best serve consumers, businesses, investors, and communities across the United States, the Financial Services Forum told regulators this week in two comment letters. Taken together, the Forum’s recommendations would best position financial institutions to safely support businesses, the economy, and job creation.
The Forum sent a comment letter to the Board of Governors of the Federal Reserve System on its proposal to integrate its regulatory capital rule with its capital planning and stress testing rules while establishing a new stress capital buffer. In addition, the Forum sent a comment letter to the Federal Reserve and the Office of the Comptroller of the Currency (OCC) on their proposal to modify the enhanced supplementary leverage ratio.
“The proposals represent important first steps by financial regulators toward establishing more tailored capital rules,” Financial Services Forum President and CEO Kevin Fromer said.
“It is critical, however, that policymakers take this opportunity now to fully evaluate the regulatory capital framework to ensure it is efficient, balanced, and best positioned to safely support economic growth and job creation,” Fromer said. “Regulators must rebalance overlapping capital rules, which currently go beyond international agreements without balancing the costs and benefits of higher capital, especially in light of the many other significant regulatory changes that have been implemented in recent years.”
The Financial Services Forum represents the chief executive officers of the eight largest and most diversified financial institutions headquartered in the United States. Member institutions are a primary source of lending to businesses and consumers and underwrite nearly three-quarters of U.S. debt and equity transactions.
Specifically, regarding the proposal to modify the enhanced supplementary leverage ratio, the Forum said:
- The effort by the Federal Reserve and OCC to recalibrate the rule is positive, but the leverage calculations should exclude risk-free assets to eliminate the economic incentive to reduce participation in lower-risk, lower-return businesses;
- The agencies should take additional steps to ensure that leverage capital requirements act as a backstop to risk-based capital requirements, rather than as a binding constraint; and
- As part of their broader review, the agencies should evaluate the “gold-plating” of international regulatory standards in the United States, which has led to much higher capital standards in the United States than in other countries, harming the international competitiveness of U.S. banks relative to their global peers.
Regarding the proposed stress capital buffer, the Forum made the following points:
- Integration of the stress testing and capital regimes to achieve a more unified and simplified capital regime is a laudable goal, but the Federal Reserve should undertake a broader review of its capital and stress testing programs to ensure that boards of directors at financial institutions can clearly and appropriately make capital management decisions; and
- The proposal underscores the need for the Federal Reserve to enhance the transparency of its stress testing models and scenarios designs.
The Forum looks forward to continued engagement with the regulators on these proposals and other matters.
The Financial Services Forum is an economic policy and advocacy organization whose members are the chief executive officers of the eight largest and most diversified financial institutions headquartered in the United States. Forum member institutions are a leading source of lending and investment in the United States and serve millions of consumers, businesses, investors, and communities throughout the country. The Forum promotes policies that support savings and investment, deep and liquid capital markets, a competitive global marketplace, and a sound financial system.