Uncategorized

Regulators are aligned on capital reforms. Congress is a different story

By  Kyle Campbell

July 12, 2023Federal regulators have lined up behind stronger capital requirements for large banks, but questions remain about how much political support they can generate in Washington — and how much they will need for their efforts to last.  Unlike the last time bank capital standards were increased after the subprime mortgage crisis, this latest push lacks clear champions in Congress…. Karen Petrou, managing partner of Federal Financial Analytics, said the full impact of the changes will have to be spelled out in the regulators’ notice of proposed rulemaking. In particular, Petrou said the focus will be on differences between the current advanced approaches model used for determining risk-based capital requirements and the new standard approach that will be implemented to align with the so-called Basel III endgame. While capital levels overall will go up as a result of this change, she said, the treatment of specific exposures under the new rules will determine which firms bear the brunt of increase. For banks that have been subjected to the advanced regulations, a switch to a new standard could actually bring a modicum of relief. Because of this, Petrou said she puts little stock in Barr’s assertion that the changes will result in an average increase in capital of 2% across the impacted banks, or that banks could raise the additional equity needed in just two years.”That’s just an average. It’ll have a big impact …

What’s next for Fed supervision? Basel’s Pillar 2 may hold the key

By Kyle Campbell

Regulatory changes are coming to the Federal Reserve in response to this spring’s three large bank failures, and while some will take years to hash out, others can be implemented much more quickly…Karen Petrou, managing partner of Federal Financial Analytics, said Pillar 2 was created to address safety and soundness concerns that are difficult to control uniformly via top-down, standardized capital or liquidity requirements. It grants supervisors broad jurisdiction over concerns not explicitly addressed in Pillar 1 capital framework — namely credit risk, market risk and operational risk. “When the Basel Committee was figuring out how to handle interest rate risk in the express capital standards, they said supervisors and regulators need to do this themselves, either by express interest rate risk capital requirements suitable for their jurisdiction or supervision,” Petrou said. “Same thing with sovereign risk concentrations and a number of other governance issues. When regulators issue core principles for bank governance, those are Pillar 2 standards.”

https://www.americanbanker.com/news/whats-next-for-fed-supervision-basels-pillar-2-may-hold-the-key

 …