ABU DHABI U.S. regulators should consider streamlining rules now being adopted that force big banks to hold more capital, a top Federal Reserve official said on Monday.
Eric Rosengren, president of the Boston Federal Reserve Bank, in remarks prepared for delivery at a conference, suggested the Fed and other Wall Street regulators focus on the narrower definition of capital under the global Basel III framework. He did not comment on monetary policy or the U.S. economy.
The Fed in July adopted the global Basel III rules, pledging to draft tough capital requirements for the largest banks. The accord, named after the Swiss city that is home to its overseer, the Bank for International Settlements (BIS), was drawn up to make banks more stable in the wake of the worst financial crisis since the Great Depression.
"It would be beneficial to look for ways to streamline discussions in order to focus investors and the public on those factors most relevant to the financial solvency of the firm," Rosengren said in remarks for delivery to a conference hosted by the Financial Stability Institute of the BIS.
The Basel pact, which will be phased in starting next year, will force most banks to hold about three times as much top-quality capital as is required under existing rules, to reduce their risk and protect taxpayers from costly bailouts.
Rosengren, an influential voice at the Fed on financial regulation and a strong supporter of the post-crisis U.S. Dodd-Frank Wall Street reform law, suggested that "one potential simplification" would be to focus on only the so-called Tier 1 definition of capital: common equity.
"Potentially de-emphasizing the reporting of the broader measures of capital would simplify financial statements and would create more focus on the capital base with the best loss absorption capability - where investors and regulators should likely concentrate," he said.
"Now that many of the regulations are being implemented," Rosengren added, "there should be thoughtful consideration as to whether streamlining the rules could maintain the same level of capital adequacy assurance with lower cost to banking organizations, regulators, and investors."