Bloomberg News

U.S. Regulators Approve Rule Setting Capital Floor for Banks

June 14, 2011

(Updates with interagency agreement in first paragraph.)

June 14 (Bloomberg) -- The Federal Deposit Insurance Corp. board approved a measure barring the largest U.S. lenders from reducing capital levels below baselines set for smaller banks as part of a joint rulemaking under the Dodd-Frank Act.

FDIC board members voted 5-0 today to enact the rule, which will also hold large financial holding companies to the same capital requirements as their deposit-taking subsidiaries. The Office of the Comptroller of the Currency and the Federal Reserve announced their approval in an interagency statement.

The measure, included in the regulatory overhaul at the request of U.S. Senator Susan Collins of Maine, prevents lenders from lowering capital holdings using formulas in the Basel II international banking accords. Without such a floor, banks and their holding companies would have been allowed to reduce capital levels over time.

“Today’s rule implements the Collins amendment, which in my view is the single most important provision of the Dodd-Frank Act for strengthening the capital of the U.S. banking system and leveling the competitive playing field,” FDIC Chairman Sheila Bair said in a statement.

The rule by itself won’t require lenders to hold additional capital, since all U.S. banking companies are already computing capital requirements using the rules that would serve as the floor, Bair said. It does, however, ensure that “when the crisis is forgotten and models again tell us that risks and needed capital are minimal, that large banks will not be allowed to operate with less capital than Main Street banks,” she said.

The rule will take effect 30 days after it is published in the Federal Register.

--Editors: Gregory Mott, Maura Reynolds

To contact the reporter on this story: Meera Louis in Washington at mlouis1@bloomberg.net

To contact the editor responsible for this story: Lawrence Roberts at lroberts13@bloomberg.net


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