All of the U.S. banking agencies have agreed to finalize the Basel III capital rules, although the FDIC has conditioned this only on approving an interim version pending additional changes it believes will make it more robust. Because the final rule incorporates all three proposals, it is a massive measure. FedFin will thus analyze it in separate reports, starting here with an assessment of the new ratios, who must meet them and key parameters determining the stringent U.S. capital standards set now to cover virtually all traditional banking organizations and foreign banks doing business in the U.S. Importantly, in the final rule as in the proposal, large banks subject to the advanced approaches (i.e., those with assets over $250 billion) must calculate their regulatory capital in accordance not just with the new numerator, but also in both the standardized and advanced requirements germane to risk-weighted assets (RWAs). As required by the Collins Amendment to Dodd-Frank, the most stringent of these two ratios would then govern the bank. Banks other than these very large ones would have a one-time opportunity to retain the current approach to incorporating unrealized gains and losses in capital, but the largest banks now would need to eliminate this “filter,” increasing capital volatility and, regulators hope, the robustness of capital under market stress. All covered banks (including foreign ones) will now come under an on-balance sheet leverage ratio of four percent (up from three percent for strong banks), and advanced-approaches banks will also have to hold three percent against certain off-balance sheet assets.
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