AMERICA’S Federal Reserve last night released a proposal to back the Basel III agreement on higher capital standards for banks, even though it largely rejects pleas by the US banking industry to soften parts of the new standards.
The Fed board voted 7-0 yesterday to put the proposal out for public comment. The Federal Deposit Insurance Corp and the Comptroller of the Currency are also set to approve the proposal.
The Basel III agreement is the cornerstone of efforts by international regulators following the 2007-2009 financial crisis to make sure the global banking system is more resilient.
The new standards would force banks to rely more on equity than debt to fund themselves, so that they are able to better withstand significant losses.
US banks had pushed the Fed to allow them to more count mortgage servicing rights and the unrealised gains and losses of certain securities toward their capital requirements than allowed by Basel III, but the US central bank’s draft rule closely follows the international agreement.
It is up to each country to write rules to implement the Basel agreement for its banks.
The accord will require banks to maintain top-quality capital equivalent to seven per cent of their risk-bearing assets, about three times what they are required to hold under the existing rules.