U.S. bank regulators to tackle capital standards

* First steps being taken on Collins amendment

* FDIC board also to vote on insurance fund target, budget

By Dave Clarke

WASHINGTON, Dec 14 (BestGrowthStock) – U.S. banking regulators meet
on Tuesday to take the first steps toward implementing higher
capital requirements set out in the Dodd-Frank financial
overhaul law.

The Federal Deposit Insurance Corp board will consider a
proposal on how to set minimum capital requirements for banks
under a provision in the new law that was added by Sen. Susan
Collins of Maine with the strong backing of FDIC Chairman
Sheila Bair.

Many lawmakers and regulators came out of the 2007-2009
financial crisis arguing banks did not hold enough high quality
capital to deal with the shock to financial system and this
contributed to the government having to bail them out.

Banks have voluntarily been building capital levels in the
aftermath of the crisis so it is unclear how many would have to
bolster their capital.

The proposed rules, part of a busy week by regulators
toward implementing Dodd-Frank, may serve mostly to stop
capital levels getting too low in the future. [ID:nN13197404]

Collins’ provision would set a “floor” for capital and
leverage requirements.

Bank holding companies would have to meet the same minimum
requirements that govern their banking units that are insured
and regulated by the FDIC. In the past, capital requirements
for holding companies have been less stringent than those for
insured depositary institutions.

These minimum requirements would also apply to any non-bank
institutions that the government deems to be important to the
financial system and therefore subject to supervision by the
Federal Reserve.

The rule being considered Tuesday will be the first step in
putting the Collins amendment into practice and it will be
jointly issued by the FDIC, the Office of the Comptroller of
the Currency and the Fed.

Bair said earlier this year she was concerned bank holding
companies were relying on their insured depository institutions
as a source of capital strength when the opposite should have
been the case.

“If, in the future, bank holding companies are to become
sources of financial stability for insured banks, then they
cannot operate under consolidated capital requirements that are
numerically lower and qualitatively less stringent than those
applying to insured banks,” she said in a May 7 letter
supporting Collins’ proposal.

A question surrounding the Collins amendment is how it will
mesh with the new international capital standards, known as
Basel III, which were endorsed in November by leaders from the
Group of 20 developed and emerging nations.

The details of that agreement are still being hammered out
and U.S. regulators have yet to to consider how to implement
it.

MF Global financial services analyst Jaret Seiberg said the
rule being considered by the FDIC on Tuesday will likely seek
to establish a standard based on the existing Basel I and Basel
II agreements.

“This matters because the proposal may actually require
banks to operate separate capital systems indefinitely, which
is a compliance cost as well as a distraction,” Seiberg wrote
in a research note.

Regulators have until January 2012 to issue final rules
implementing all aspects of the Collins amendment.

Also on Tuesday, the FDIC will consider a proposal on how
market risk surrounding such things as securitized products
should impact capital standards.

The board is also scheduled to vote on a final rule setting
a much higher long-term target for the minimum level of its
insurance fund as well as its budget for the upcoming year.
(Reporting by Dave Clarke; Editing by Tim Dobbyn)

U.S. bank regulators to tackle capital standards