Less than a week after the FRB finalized the U.S. version of the Basel II.5 rule and proposed a set of three NPRs to implement Basel III (see Client Report CAPITAL182), the FDIC and OCC followed suit at an FDIC Board Meeting today. Echoing worries from FRB Gov. Raskin, Director Hoenig expressed concern that the minimum capital ratios remain too low and are too dependent on banks’ internal models, suggesting there should be a greater focus on minimum leverage ratios. Director Norton agreed that the minimum capital ratios might not be high enough for the largest institutions and sought comments on whether the revised risk weightings sufficiently reflect probability of and loss given default. CFPB Director Cordray said the Bureau will be particularly interested to hear from smaller banks on how the heightened capital requirements for non-traditional mortgages affect access to mortgage credit, as this is one of the issues associated with the qualified mortgage (QM) rule recently re-opened for comment (see FSM Report MORTGAGE107). Although the agency drafts are generally the same, the FDIC provides for the Basel III transition period for reduced capital reliance on mortgage servicing rights, deferred tax assets and subsidiary capital – a transition omitted in the FRB’s NPR due to what FDIC staff described as an oversight at the Fed. This report analyzes the FDIC meeting; subsequent FedFin reports will provide more in-depth analysis for each of these rules.
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