Federal Reserve

The Federal Reserve will compel the largest U.S. banks with $50 billion or more in assets to take “affirmative steps” to increase capital during the phase-in of higher capital standards.

“The Federal Reserve will require bank holding companies that are subject to our proposed capital plan rule, generally companies with $50 billion or more in total assets, to take affirmative steps to improve capital ratios, such as external capital raises,” ensuring compliance deadlines under Basel III, Tarullo said today in Washington. He was referring to the international bank capital agreement in Basel, Switzerland.

Global regulators said in June banks deemed too big to fail must hold as much as 2.5 percentage points in additional capital as part of efforts to prevent another financial crisis. The additional capital buffers will range from 1 percentage point to 2.5 percentage points, the Basel Committee on Banking Supervision said. U.S. banking regulators are also under orders by the Dodd-Frank Act to impose heightened standards on the biggest U.S. banks to curtail systemic risk.

Last month, MetLife Inc., the largest U.S. life insurer said the Fed rejected its plan to increase its dividend and resume share purchases. The insurer said it will try to sell its banking businesses, thus reducing government oversight.

Tarullo is the Fed’s leading governor on supervisory matters. He has redesigned the central bank’s approach to oversight, centralizing much of the information gathering and decision making to the Board of Governors and subjecting it to more rigorous and horizontal analysis by multiple Fed departments.

Gearing Up

Central bank regulators are gearing up for another capital plan review, a process where they ask bank boards and management at the biggest banks to submit plans for capital distribution or accumulation over the next several quarters.

The Fed will expect banks that will need to comply with Basel III “to improve their capital ratios steadily...