Fed official supports plan to increase bank capital

Michael Barr, the Vice Chairman of the Federal Reserve (Fed) for Supervision, stated that the proposed regulation to increase bank capital could increase banks’ financing costs but would allow them to absorb more losses. In his speech at the annual meeting of the American Bankers Association, Michael Barr, the Vice Chairman of the Federal Reserve (Fed) for Supervision, emphasized the importance of banks having sufficient capital in order for the financial system to weather unexpected stress. Referring to the proposal to increase the capital requirements of large banks, Barr said he believed the benefits of the proposal in question would outweigh the costs. Barr stated that the proposal could lead to higher financing costs, drawing attention to the fact that capital allows banks to absorb more losses without jeopardizing their ability to repay their creditors. “Banks that are better capitalized can better absorb losses and continue to lend to households and businesses in times of stress, which helps us have a healthy and strong economy,” Barr said, adding that the Fed and other regulators welcomed comments from industry on the proposed proposals. The Fed, in partnership with the U.S. Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC), had previously issued a new proposal for measuring risk-weighted assets and the regulatory capital requirements of large banks. It had been announced that the proposal would apply to banks with $100 billion or more in total assets and that capital requirements for community banks would not change. It had been noted that the improvements in risk sensitivity and consistency would result in increased capital requirements for affected banks.