The U.S. Federal Reserve Board is proposing to strengthen regulation and oversight of large banks and other firms deemed “systemically important”.
The proposals include a wide range of measures addressing issues such as capital, liquidity, credit exposure, stress testing, risk management, and early remediation requirements. It applies to all U.S. bank holding companies with consolidated assets of US$50 billion or more, and any non-bank financial firms that may be designated systemically important by the Financial Stability Oversight Council.
The measures include risk-based capital and leverage requirements; liquidity requirements; annual stress tests; single-counterparty credit limits; and early remediation requirements based on triggers such as capital levels, stress test results, and risk-management weaknesses which could include imposing restrictions on growth, capital distributions, and executive compensation, as well as capital raising or asset sales.
The Fed is proposing that firms would need to comply with many of the enhanced standards a year after they are finalized. The requirements related to stress testing for bank holding companies, however, would take effect shortly after the rule is finalized. Comments on the proposal are requested by March 31, 2012.
Earlier this year, global banking regulators agreed to impose additional capital requirements and supervisory obligations on so-called systemically important firms. So far, no Canadian banks have been identified as being considered systemically important to the global financial system.
A proposal regarding foreign banking organizations will be issued shortly, it added.