Fed Vice Chair Bowman Previews Streamlined Bank Capital Framework

The U.S. Federal Reserve’s bank capital framework primarily comprises the global systemically important bank (G-SIB) surcharge and the Basel III endgame rules, which are designed to ensure that large banks can absorb losses. The two sets of requirements may overlap, however, raising lending costs and affecting financing for small and medium-sized businesses as well as competition in the private credit market.

Fed Vice Chair for Supervision Michelle Bowman recently said the central bank plans to revise risk-weight parameters and the calculation of operational risk while eliminating duplicative capital requirements. The proposals are expected to be released by the end of March. Markets broadly expect capital thresholds for large banks to fall, but the Fed has yet to disclose the size of the reductions, the amounts involved or a formal effective date.