Michael Barr, u The Federal Reservethe vice chairman for supervision, on Tuesday he spoke on time Brookings Institution in Washington, DC, regarding the Basel III Endgame proposal for 2023, which would change the risk-based capital requirements of central banks.
It follows an extensive review process that includes input from stakeholders during the intervention – including what Barr calls “productive meetings with board colleagues and other regulatory bodies of affiliated banks” Federal Deposit Insurance Corp. (FDIC) and The officee of the Controller of Currency (OCC) – the proposal is under review.
“This process has led us to conclude that broad and significant changes to the proposals are warranted,” Barr said on Tuesday. “As I said, there are benefits and costs to increasing capital requirements. The changes we intend to make will bring these two important goals into better balance, thanks to the feedback we received. The changes to the endgame proposal were a joint effort with our partners at the FDIC and the OCC. “
Although Barr clarified that the Basel III endgame proposal for credit risk and operational risk frameworks will not apply to large banks with assets between $100 billion and $250 billion, these banks will still have to comply with rules that set a certain amount of regulatory capital “for unrealized losses on other securities and other factors.” of consolidated income (AOCI) collected.”
Barr said the proposed changes include “reducing risk weights for residential and retail exposures, expanding the scope of reduced risk weights for low-risk corporate loans, and eliminating the minimum haircut on securities transactions,” he said.
He also explained an increase in the capital requirements of the consolidated equity common tier 1 of globally significant banks (G-SIB) by 9%, and increasing the capital requirements of non-GSIB regulated companies by 0.5%.
He also said that he will recommend “that the board does not use capital management that is accompanied by low haircuts for securities financing transactions (SFTs). The proposal included increased capital requirements for repo-style transactions and eligible loans that did not meet minimum margin requirements. Although it is in line with the Basel standard, several other authorities have not adopted this approach.”
The original set of proposals met with considerable support from members of the real estate industry. But trade groups including Mortgage Bankers Association (MBA) and National Housing Conference (NHC) welcomed the changes outlined by Barr on Tuesday.
“It seems that common sense has prevailed with the decision to re-propose the flawed Basel III Endgame proposal, a step we have been calling for since last summer in testimony before Congress, speeches, comment letters and ongoing discussions with federal regulators,” MBA CEO Bob Broeksmit said in a statement.
He went on to say that the MBA supports Barr’s revised recommendations to “renew some provisions that would have had a negative impact on the single-family and commercial financial markets.” This includes “removing the 20 percent risk-adjustment surcharge on single-family loans, which would further reduce banks’ participation in mortgage lending while reducing credit availability for low-income and low-income homebuyers.”
David Dworkin, president and CEO of the NHC, also praised the revised recommendations.
“We commend regulators for revising the capital requirements of the proposed Basel III Endgame, particularly with respect to high-value owner-occupied mortgages,” said Dworkin. “It is clear that the Federal Reserve Board of Governors has carefully considered the response sent by a number of stakeholders. This is how the control process is intended to work. “
Aligning these loans with existing capital levels “will avoid lending to homebuyers who don’t have the benefit of multi-generational wealth or an above-average income,” Dworkin said.
He added that the NHC appreciates consideration of how capital needs are “balanced against quantifiable risk, to avoid any unintended consequences that could prevent investment in community development or lending to neglected areas.”
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