Reflecting prior emergency actions, the banking agencies issued two interim final rules (IFRs) and the FRB has released another providing limited capital relief. The IFRs indirectly also provide liquidity relief by giving banks some additional room with which to add assets that then offset liquidity risk related to new or existing commitments. The first inter-agency IFR and the Fed’s accompanying IFR redefine retained income to reduce the impact this aspect of the capital definition has on capital distribution and discretionary bonuses, with the agencies indicating that the new definition is no less stringent but less volatile. This is intended to facilitate capital-buffer drawdowns under stress, with minimum risk-based and leverage requirements left unaltered.
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