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U.S. Fed to further simplify ‘stress capital buffer’ plan: Quarles By Reuters

U.S. Fed to further simplify 'stress capital buffer' plan: Quarles By Reuters


U.S. Fed to further simplify ‘stress capital buffer’ plan: Quarles By Reuters

WASHINGTON (Reuters) – Randal Quarles, head of supervision at the Federal Reserve, said on Thursday the U.S. central bank is preparing to further simplify a pending bank capital rule known as the “stress capital buffer,” following industry concerns.

In remarks prepared for delivery in Frankfurt, Quarles said the Fed should remove two specific bank requirements — a stress leverage buffer and a requirement that banks pre-pay for a year’s worth of planned dividends — saying they are unnecessary and redundant. Both were originally included in an April 2018 rule proposal.

Instead, Quarles said, the Fed should consider one of two broader options. One would have the Fed raise the baseline level for its countercyclical capital buffer, which directs banks to hold more capital during times when the economy may be overheating. The Fed currently has its buffer set at zero percent, but Quarles argued that a higher baseline would give the Fed more flexibility to adjust bank capital levels across the economic cycle.

Alternatively, Quarles said the Fed could simply increase the minimum capital it requires banks to hold after undergoing annual stress tests, which would be a simpler and more predictable approach.

He said he hoped to have these changes in place for the next round of stress tests in 2020, which will be released in June.

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