In this report, FedFin goes in depth into the specific proposals outlined by FRB Gov. Tarullo in a major speech on Friday, following up our daily briefing to assess not just what Mr. Tarullo said, but what it means for pending U.S. policy and, less probably, Basel Committee action. Mr. Tarullo is the key driver of FRB policy on regulatory capital, liquidity and systemic standards, deriving support from other governors and FRB presidents that to date has largely surpassed concerns raised by dissenting officials and senior FRB staff. Thus, we think this speech should be taken as public announcement of pending proposals and, with regard to the Basel III standards and FBO rules, near-term final action in the U.S. Most significant in these new actions is a higher leverage and risk-based capital charge for the biggest U.S. BHCs, a similar liquidity surcharge and new standards governing securities financing and broker-dealers. We also think the Tarullo speech important due to the first indication from the Federal Reserve that it too sees a continued TBTF subsidy. As FedFin has noted, we believe the GAO’s subsidy findings (see FSM Report TBTF) will play a pivotal role in FY2014 budget negotiations, a proposal sure to be still more potent if the FRB or even a few of its officials back up any finding of a significant TBTF subsidy.

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