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Wednesday, September 25, 2013

Fed Applies Basel III Rule to Stress Tests

The Federal Reserve issued two interim final rules implementing the Basel III capital regulations. The rules apply to banks participating in the next cycle of stress tests and capital plan submissions, planning for which begins Oct. 1.

The first rule clarifies that capital adequacy for large banks—those with assets of $50 billion or more—will be assessed against a minimum 5% tier 1 common ratio and that these firms must incorporate the Basel III standards into their planning for the next cycle.

The second rule allows a 1-year transition period for banks with assets between $10 billion and $50 billion, allowing them to use current regulatory capital rules to make projections for their stress tests.

Companies will not be required to use advanced approaches under Basel III in a capital planning exercise or stress test unless notified by Sept. 30 of a given year. The rules take effect immediately, but the Fed will accept comments until Nov. 25.

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