The federal banking agencies have begun to implement a new U.S. capital requirement mandated by the “Collins Amendment” in the Dodd-Frank Act. The law requires that a “generally-applicable” capital level be the floor for purposes of risk-based standards for the nation’s largest banks, depository institution holding companies, and any nonbank financial firms deemed systemic. This requires revision of the U.S. advanced approaches under the Basel II standards, as well as a broader rulemaking to determine how this new floor is to be implemented in the Dodd-Frank regulatory framework as well as that to come under Basel III. This is a complex undertaking because the Collins Amendment minimum-capital threshold is based on Basel I even as capital rules are in far broader flux. The new law also includes a ban on prospective capital standards that are quantitatively lower than those now in effect under the generally-applicable requirements, with the regulators proposing to determine this as new capital rules are adopted through a new analytical methodology on which comment is sought. All of these statutory requirements could result in a U.S. regulatory-capital regime that is more stringent than global rules and is imposed considerably more quickly. These differences will also create uncertainties for foreign banking organizations doing business in the U.S., perhaps jeopardizing the most recent international consensus on capital requirements. Coverage of nonbank firms in rules designed for banking organizations also creates significant concerns, which the NPR begins to address through provisions recommended by the FRB.

 

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