February 21, 2014 / 6:00 PM / 5 years ago

US regulators say 8 big banks can use internal models for capital

WASHINGTON, Feb 21 (Reuters) - U.S. regulators on Friday said eight big U.S. banks could use their own, tailored risk models to determine their capital requirements in the future.

Banks must rely less on debt and more on capital raised from shareholders as part of a global agreement to bolster the financial system after the 2007-2009 crisis.

That agreement, known as Basel III, calls for banks and their regulators to consider the riskiness of firms’ assets when they determine their capital requirements.

Under rules being implemented by the Federal Reserve and the Office of the Comptroller of the Currency, the biggest U.S. banks will use their own models for judging their riskiness. These are seen as more sophisticated than across-the-board requirements.

Big banks must meet certain standards for managing and measuring risk for four consecutive quarters before they can use the internal models to determine their capital needs.

The agencies said eight holding companies passed that test. They were Bank of New York Mellon Corp, Citigroup Inc , the Goldman Sachs Group, JPMorgan Chase & Co , Morgan Stanley, Northern Trust Corp, State Street Corp and US Bancorp.

They will begin reporting their risk-based capital ratios using these models during the second quarter of 2014.

Some reform advocates have said letting banks use internal models gives them too much leeway to avoid tougher capital requirements. Under U.S. rules, big banks must meet the required ratios under the general models too, the agencies said.

The Fed also said the general models will be used again for the next round of stress tests, which weigh banks’ health, to give the eight banks and regulators more time to adjust.

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