Federal Reserve board votes to seek comment on three capital‑rule proposals; Barr dissents

The Board of Governors met to consider a package of three proposals to modernize U.S. bank capital rules and voted to issue all three for public comment.

Chair Powell opened the meeting and framed the agenda as a recalibration of post‑crisis requirements so rules continue to mitigate risks efficiently. Staff detailed the proposals: a Basel III implementation for the largest, most complex firms that replaces multiple compliance approaches with a single “expanded risk‑based capital” method and tightens operational, credit and market risk measures; a standardized approach designed to better align capital for traditional lending across most banks (including use of loan‑to‑value ratios and a new treatment for mortgage servicing assets); and changes to the global systemically important bank (GSIB) surcharge to improve measurement of systemic risk (including averaging indicators instead of using year‑end points and indexing some factors to nominal GDP).

Staff said the combined package would modestly lower common equity Tier 1 (CET1) requirements for the largest banks (staff presented a 2.4% reduction attributable to parts of the package and said combined changes with stress‑test adjustments could lower requirements by about 4.8%). Staff also estimated a banking‑system‑wide Tier 1 capital reduction of about $117,000,000,000 (a bit less than 6% of an estimated $2,000,000,000,000 aggregate Tier 1 capital base).

Board members pressed staff on several issues during a lengthy question‑and‑answer period. Vice Chair Jefferson asked why the GSIB short‑term wholesale funding indicator was being recalibrated from about 30% toward 20%; staff replied that when measured relative to total assets the reliance is nearer 20% and that the proposal would measure short‑term wholesale funding in dollar terms rather than relative to risk‑weighted assets to avoid perverse incentives. Members also discussed market‑risk treatment, operational‑risk charges, indexing thresholds (e.g., to nominal GDP vs. CPI measures), and potential effects on low‑ and moderate‑income borrowers and small businesses.

Several board members said they support issuing the proposals for notice and comment. Vice Chair for Supervision Bowman described the package as data‑driven and calibrated to align capital with risk; Governor Waller urged indexing thresholds to nominal GDP. Governor Cook supported seeking comment while urging careful attention to data and interactions with stress testing.

Governor Barr issued a formal dissent, arguing the proposals contain many downward deviations from the Basel III accord that would materially weaken the U.S. capital framework. He raised specific objections to reducing the GSIB short‑term wholesale funding weight, making one‑time downward adjustments to GSIB method‑2 coefficients, and several market‑risk and securitization treatments; he said the aggregate effect could reduce CET1 for the largest banks by roughly 4.8% (and larger when combined with other recent changes) and that the package therefore risks harming financial stability.

The Board then voted to approve issuance for public comment. Roll calls for the three rule notices and the Paperwork Reduction Act information‑collection notice showed the same pattern: Vice Chair Jefferson, Vice Chair for Supervision Bowman, Governor Waller, Governor Cook, Governor Myron and Chair Powell voted yes; Governor Barr voted no. Each motion authorized staff to make minor non‑substantive edits before publication.

The Board invited public comment during the notice period and adjourned. The proposals and the public comment record will inform any final rulemaking.