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Friday, June 8, 2012

Fed Issues Proposals to Implement Basel III Capital Reforms

The Federal Reserve yesterday issued three proposed rules that would implement the Basel III regulatory capital reforms and Dodd-Frank Act-required changes.

The first proposal, among other things, would establish the Basel III minimum regulatory capital ratio requirements. They would include a new minimum common equity Tier 1 ratio of 4.5% of risk-weighted assets and a common equity Tier 1 capital conservation buffer of 2.5% of risk-weighted assets. The minimum Tier 1 capital ratio also would be raised from 4% to 6% of risk-weighted assets.

The proposal would "apply to all depository institutions, bank holding companies with total consolidated assets of $500 million or more, and savings and loan holding companies," the Fed said.

The second proposal, the standardized approach for risk-weighted assets, also would apply to all banking organizations. It would revise and harmonize the Fed's rules for calculating risk-weighted assets to enhance risk sensitivity and address weaknesses identified over the past several years, the agency said.

The proposal also incorporates an ABA request on securitizations that allows banks to opt out of an approach based on a complex formula and apply a simpler approach.

The third proposal, the advanced approaches risk-based capital rule, would incorporate changes to the international capital standards, including those related to the securitization framework, treatment of counterparty credit risk, and disclosure requirements on capital instruments and securitization exposures.

The comment deadline on the proposals is Sept. 7.

Read more.
Read the proposal on minimum regulatory capital ratio requirements.
Read the proposal on the standardized approach for risk-weighted assets.
Read the proposal on the advanced approaches risk-based capital rule.
Read a Fed staff summary on the proposed rules (page 6).

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