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Federal Reserve to Hold Open Meeting on Basel III Implementation


The Federal Reserve Board has announced an open meeting scheduled for July 27 to discuss proposed rules for implementing the Basel III endgame agreement for large banks. The meeting will also cover capital surcharges for the largest and most complex banks.

This move by the Fed comes in response to reports last week of a gathering by federal banking regulators, aimed at aligning the country’s rules with the international Basel III accords that were established after the Global Financial Crisis.

According to Bloomberg, the proposed rule changes may extend to residential mortgage capital requirements for larger banks, potentially going beyond measures implemented in other countries.

Jaret Seiberg, an analyst at TD Cowen, expects the Fed to require banks to submit capital proposals averaging 200 basis points, or 2%. However, the specific requirements will vary depending on the individual bank.

In addition to capital requirements, the Fed is also forecasted to introduce changes on how regional banks handle unrealized gains and losses on their available-for-sale (AVS) securities.

Seiberg further stated that the Fed’s Basel III endgame proposal will include AFS capital treatment for all banks with at least $100 billion of assets.

This meeting follows an announcement made by Michael S. Barr, vice chair for supervision at the U.S. Federal Reserve, on July 10. Barr stated that he is leading a multiyear effort to increase capital requirements for banks following three bank failures earlier this year.

It is worth noting that some proponents from the bank industry argue that many of these changes are unnecessary and will ultimately raise borrowing costs for consumers and business owners.

The Federal Reserve is also expected to unveil changes to its annual stress test in the coming weeks.

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