Federal Reserve proposes stronger regulations

The US Federal Reserve has proposed stronger regulatory measures for the US banking system.

Banks with $50 billion (£32 billion) or more in assets, or non-bank financial firms deemed ‘systemically important’, will be subject to greater capital and liquidity requirements.

“The proposal would create an integrated set of requirements that seeks to meaningfully reduce the probability of failure of systemically important companies and minimise damage to the financial system and the broader economy in the event such [as] a company fails”, the Federal Reserve said in a statement.

Banks will be required to submit an annual ‘capital plan rule’ that clearly demonstrates an ability to continue operations “during times of economic and financial stress”.

The capital plan will also be expected to reflect an ability to maintain capital levels above the new minimum requirement of 5%.

The capital plan will be analysed in relation to the mandatory stress tests as part of the Dodd-Frank Act. Internal stress tests are required at least monthly.

Additional provisions include limits on counter-party risks, remediation requirements and a risk committee requirement to oversee internal operations.

Only banks with $10 billion or more in total consolidated assets will have to establish a risk committee.

While affected banks will have a year to comply with the majority of the requirements, the stress tests will have to be implemented shortly after the rules are finalised.

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