The U.S. Federal Reserve on Tuesday laid out plans for future U.S. bank reforms that go beyond an international agreement, ahead of a board vote to adopt the base Basel III capital rules in the United States.
Daniel Tarullo, the Fed board member in charge of financial supervision, said bank regulators are working on four new rules for the country's biggest banks in the coming months.
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Tarullo said the additional rules are needed because the Basel III accord, a global agreement to strengthen banks' stability after the 2007-2009 financial crisis, did not go far enough.
"The Basel III leverage ratio seems to have been set too low to be an effective counterpart to the combination of risk-weighted capital measures that have been agreed internationally," Tarullo said.
Besides an additional rule on leverage, U.S. bank regulators are also working on a rule to address risks in short-term wholesale funding, a rule on combined equity and long-term debt, and a capital surcharge for banks that pose a potential threat to the entire system.
Still, the Fed on Tuesday is expected to adopt the base Basel III agreement on capital, even as it eyes tougher reforms.
The agreement, which would be phased in in the coming years, would force most banks to maintain about three times as much top-quality capital as is required under existing rules.
The Fed also eased some parts of that base agreement for community banks to address concerns that the new capital rules could be too burdensome.
The final draft adapted risk weightings for residential mortgages and some other assets for smaller institutions.
Two other U.S. bank regulators, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Company, also must approve the rules.
The FDIC's second-in-command, Tom Hoenig, is an outspoken critic of Basel III, which he says allows lenders to appear well-capitalized when they are not.
He has said the rules are flawed because they give the banks latitude to use complicated measurements of how risky their loans are to determine the capital they must hold.