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Fed to Resist Adding Capital Demand for Biggest Banks

By Feux Follets following x   2018 May 17, 3:01pm 178 views   1 comments   watch   sfw   quote     share    

Countercyclical buffer would safeguard against sharp downturn. Brainard is among officials saying step could be considered.

The Federal Reserve is facing calls within its ranks to consider activating an obscure capital buffer meant to bolster big banks against coming storms when economic conditions are sunny.

But for now, those pushing to weigh the demand for billions of dollars in new capital haven’t persuaded the key agency staffers who are reviewing the decision, according to people familiar with talks among U.S. banking agencies.

Even as regulators appointed by President Donald Trump move to ease rules for Wall Street, prominent Fed leaders -- including one of the three current governors -- are arguing that the so-called countercyclical capital buffer could provide a vital safeguard against a sudden downturn. But officials in the trenches at the Fed and other agencies see current risks as too remote to justify using it, though they’ve discussed emerging economic factors that could shift their future thinking, said the people, who requested anonymity because the talks are private.

The buffer, which has never been used in the U.S., is meant to be activated when asset prices and credit are at risk of becoming overheated. But a new requirement for a heftier capital cushion on Wall Street -- even a momentary one -- would go against the recent trend of regulators dialing back such demands.

“If cyclical pressures continue to build and financial vulnerabilities broaden, it may become appropriate to ask the largest banking organizations to build a countercyclical buffer of capital to fortify their resilience and protect against stress,” Fed Governor Lael Brainard said in an April 3 speech, noting that the buffer was meant to be turned on about a third of the time.

Three presidents of regional Fed banks have made comments similar to Brainard’s in recent weeks, making this an unusually public debate on agency policy. But regional presidents don’t have a say in the decision to activate the buffer, which would be made by the Fed’s board.

More: https://www.bloomberg.com/news/articles/2018-05-16/williams-says-fed-s-era-of-market-hand-holding-nearing-an-end

#FederalReserve #Banks #TooBigToFail #Policy #Economics

1   justme   ignore (0)   2018 May 17, 3:09pm   ↑ like (1)   ↓ dislike (0)   quote        

Once FRB officials start talking about activating the CCCB (*)requirements,it is already much too late to get started.

(*) not to be confused with the CCCP.

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