The Federal Reserve proposes new capital rules for Wall Street

As part of capital standards reform, the Federal Reserve proposed new rules that could allow large banks to reduce the amount of capital they must hold as a cushion against a future economic shock.

The proposal may clear the way for some large banks to reduce their capital levels in the future but the largest firms on Wall Street are not likely to get such relief, the Fed said.

The proposal is expected to reduce bank paperwork and also make it easier for regulators to monitor the health of banks, said Randal Quarles who is the top Fed official in charge of regulations.

The Fed said the proposed changes are likely to somewhat increase the amount of capital required for the 30 largest banks known as GSIBs or global systemically important banks.

The measures should modestly decrease the amount of capital required for banks smaller than the GSIBs, the Fed said. “No firm is expected to need to raise additional capital as a result of this proposal,” the Fed said in a statement. Banks and other stakeholders will have 60 days to comment on the proposal that is likely to take effect next year, said the Federal Reserve.

The new capital standard would works incoherent with the annual Fed checkup on bank health known as the ‘stress test’.

 

On a side note, Chicago Federal Reserve President Charles Evans one of the Fed’s most dovish policymakers, said Saturday that he is optimistic inflation will reach the Fed’s 2% goal and that slow, gradual rate increases will be appropriate.

The Fed next meets to set policy in June, by which time the Fed will have more inflation data in hand. If it remains on track for 2%, “continuing our slow gradual increases will be appropriate to get us to the point where monetary policy isn’t really providing more lift to the economy,” Evans said.