© Reuters. FILE PHOTO: Federal Reserve Board Vice Chair for Supervision, Michael Barr, testifies before a Senate Banking, Housing, and Urban Affairs Committee hearing in the wake of recent bank failures, on Capitol Hill in Washington, U.S., May 18, 2023. REUTERS/Eve
By Pete Schroeder
WASHINGTON (Reuters) – The Federal Reserve’s top regulatory official laid out a sweeping plan to increase capital requirements for the nation’s largest banks, saying recent bank failures underlined the need for regulators to bolster resilience in the system.
In a widely-anticipated speech, Fed Vice Chair for Supervision Michael Barr said he planned to pursue multiple regulatory initiatives that would direct larger banks to hold more in reserve and meet stricter oversight requirements.
“Events over the past few months have only reinforced the need for humility and skepticism, and for an approach that makes banks resilient to both familiar and unanticipated risks,” he said on Monday in prepared remarks, noting the failure of Silicon Valley Bank and two other lenders earlier this year.
Barr said he did not plan to overhaul the U.S. bank capital framework, but instead build on it in several ways, including by fully implementing an international bank capital agreement and expanding annual “stress tests” of bank health.
He also wants to apply stricter capital rules for banks with over $100 billion in assets, expanding the pool of firms that must comply, adding he did not plan to ease existing capital rules for globally systemic banks that the industry had been seeking.
He said that most banks already have enough capital to meet the new standards he has envisioned, but firms that must raise capital would be able to do so in less than two years of retained earnings, while maintaining their investor dividends.
