Fed Releases Capital Buffer Plan for Containing Credit Risk
By Cheyenne Hopkins

The Federal Reserve is seeking public comment on the standards it would use in requiring the biggest banks to set aside additional capital as a buffer in periods when market risks raise the threat of future losses.  The countercyclical capital buffer is meant to ensure that internationally active financial institutions have enough capital to absorb shocks without threatening the broader economic system. It will apply to banks with more than $250 billion in assets such as JPMorgan Chase & Co., Citigroup Inc. and Goldman Sachs Group Inc., and those with more than $10 billion in foreign exposure. The Fed said it is setting the buffer at zero for now, but in times of elevated risk that level could go up to 2.5 percent of risk-weighted assets. Regulators would give institutions a year to phase in any increase, which would be in addition to already required minimum total risk-based capital levels banks must meet… Regulators had suggested the capital buffer in 2010 but had not laid out the framework. The U.S. guidance follows international rules from the Basel Committee on Banking Supervision. The Basel committee allowed member countries to set their own framework for triggering the buffer and suggested that the level be guided by a calculation of credit to gross domestic product. The Fed’s announcement provided additional factors to assess risk. “The U.S. approach has many different triggers and therefore is a more effective countercyclical buffer and one big banks may be subjected to more frequently,” said Karen Shaw Petrou, managing director of Washington-based research firm Federal Financial Analytics Inc.