Regulatory Developments
The Federal Reserve has taken several policy actions since the publication of the May 2023 Supervision and Regulation Report. Significant actions are detailed in table 1 below. All Supervision and Regulation (SR) and Consumer Affairs (CA) letters are available on the Federal Reserve Board's public website.8
Table 1. Federal Reserve or interagency rulemakings/statements (proposed and final)
| From 04/29/2023 to 10/31/2023 | |
|---|---|
| Date issued | Rule/guidance |
| 6/1/2023 | Agencies request comment on quality control standards for automated valuation models proposed rule. Joint press release: https://www.federalreserve.gov/newsevents/pressreleases/bcreg20230601a.htm |
| 6/6/2023 | Agencies issue final guidance on third-party risk management. Joint Press release: https://www.federalreserve.gov/newsevents/pressreleases/bcreg20230606a.htm |
| 6/8/2023 | Agencies propose interagency guidance on reconsiderations of value for residential real estate valuations. Joint press release: https://www.federalreserve.gov/newsevents/pressreleases/bcreg20230608a.htm |
| 6/29/2023 | Agencies finalize policy statement on commercial real estate loan accommodations and workouts. Joint press release: https://www.federalreserve.gov/newsevents/pressreleases/bcreg20230629a.htm |
| 7/27/2023 | Agencies request comment on proposed rules to strengthen capital requirements for large banks. Joint press release: https://www.federalreserve.gov/newsevents/pressreleases/bcreg20230727a.htm |
| 7/27/2023 | Federal Reserve Board announces the individual capital requirements for all large banks, effective on October 1 Press release: https://www.federalreserve.gov/newsevents/pressreleases/bcreg20230727b.htm |
| 7/28/2023 | Agencies update guidance on liquidity risks and contingency planning. Joint press release: https://www.federalreserve.gov/newsevents/pressreleases/bcreg20230728a.htm |
| 8/8/2023 | Federal Reserve Board provides additional information on its program to supervise novel activities in the banks it oversees and activities that involve crypto-assets and distributed ledger or "blockchain" technology. Press release: https://www.federalreserve.gov/newsevents/pressreleases/bcreg20230808a.htm |
| 8/29/2023 | Agencies request comment on proposed rule to require large banks to maintain long-term debt to improve financial stability and resolution. Joint press release: https://www.federalreserve.gov/newsevents/pressreleases/bcreg20230829a.htm |
| 8/29/2023 | Agencies propose guidance to enhance resolution planning at large banks. Joint press release: https://www.federalreserve.gov/newsevents/pressreleases/bcreg20230829b.htm |
| 10/6/2023 | Federal Reserve Board finalizes a rule establishing capital requirements for insurers supervised by the Board. Press release: https://www.federalreserve.gov/newsevents/pressreleases/bcreg20231006a.htm |
| 10/24/2023 | Agencies issue principles for climate-related financial risk management for large financial institutions. Joint press release: https://www.federalreserve.gov/newsevents/pressreleases/bcreg20231024b.htm |
Basel III Capital Framework
In July, the bank regulatory agencies invited public comment on a proposal to modify large bank capital requirements.9 The changes would implement the final components of the Basel III agreement, also known as the Basel III endgame.
The proposal seeks to apply a broader set of capital requirements to an increasing number of large banking organizations—generally applying them to banking organizations with $100 billion or more in total assets.
Most banks currently would have enough capital to meet the proposed requirements. The proposal is estimated to result in an aggregate 16 percent increase in CET1 capital requirements for all large banks, with the increase principally affecting the largest and most complex banks. The effects would vary for each banking organization based on its activities and risk profile. Under the proposal, large banks would begin transitioning to the new framework on July 1, 2025, with full compliance starting July 1, 2028.
Separately, the Federal Reserve Board requested comment on a proposal that would make certain adjustments to the calculation of the risk-based capital surcharge for global systemically important banking organizations (G-SIBs), also known as the G-SIB surcharge. The changes would better align the surcharge to each banking organization's systemic risk profile, including by measuring indicators of a banking organization's systemic importance over the entire year, instead of only at the end of the year.10
Comments on both proposals were initially due by November 30, 2023, though that was extended to January 16, 2024 to allow interested parties more time to analyze the issues and prepare their comments.11
Long-Term Debt
In August, the agencies requested public comment on a proposal to enhance the resolvability of large banks that are not G-SIBs. G-SIBs are already subject to substantial resolution-related requirements under existing rules.12
The proposal would require non-G-SIB large banks with at least $100 billion in total assets to issue and maintain a minimum amount of long-term debt, which could be used to absorb losses and to increase the options available to resolve such banks in case of failure. By reducing the risk that depositors would face losses, long-term debt also could reduce the speed and severity of bank runs and limit contagion when a bank is under stress. The proposal includes transition and phase-in provisions and would allow for certain outstanding long-term debt to apply toward the minimum requirements to provide in-scope banks with a reasonable period to comply with the requirements.
Comments on this proposal are due by November 30, 2023.
Discount Window Preparedness
In July, the agencies updated their existing guidance on liquidity risks and contingency planning.13 The updated guidance indicates that depository institutions should regularly evaluate and update their contingency funding plans. It further notes that the discount window is an important tool that depository institutions can utilize in managing liquidity risk, and that the agencies encourage depository institutions to incorporate the discount window as part of their contingency funding arrangements.
The guidance also reinforces the supervisory expectation that if the discount window is part of a depository institution's contingency funding plans, the depository institution should establish and maintain operational readiness to use the discount window, including by conducting periodic transactions.
References
8. The Federal Reserve publishes SR and CA letters to address significant policy and procedural matters related to the Federal Reserve System's safety and soundness and consumer compliance supervisory responsibilities, respectively. SR letters are available on the Board's public website at https://www.federalreserve.gov/supervisionreg/srletters/srletters.htm, and CA letters are available on the Board's public website at https://www.federalreserve.gov/supervisionreg/caletters/caletters.htm. Return to text
9. See Board of Governors of the Federal Reserve System, "Agencies Request Comment on Proposed Rules to Strengthen Capital Requirements for Large Banks," news release, July 27, 2023, https://www.federalreserve.gov/newsevents/pressreleases/bcreg20230727a.htm. Return to text
10. See Board of Governors of the Federal Reserve System, "Agencies Request Comment on Proposed Rules to Strengthen Capital Requirements for Large Banks," https://www.federalreserve.gov/newsevents/pressreleases/bcreg20230727a.htm. Return to text
11. See Board of Governors of the Federal Reserve System, "Agencies Extend Comment Period on Proposed Rules to Strengthen Large Bank Capital Requirements," news release, October 20, 2023, https://www.federalreserve.gov/newsevents/pressreleases/bcreg20231020a.htm. Return to text
12. See Board of Governors of the Federal Reserve System, "Agencies Request Comment On Proposed Rule To Require Large Banks to Maintain Long-Term Debt to Improve Financial Stability and Resolution," news release, August 29, 2023, https://www.federalreserve.gov/newsevents/pressreleases/bcreg20230829a.htm. Return to text
13. See Board of Governors of the Federal Reserve System, "Agencies Update Guidance on Liquidity Risks and Contingency Planning," news release, July 28, 2023, https://www.federalreserve.gov/newsevents/pressreleases/bcreg20230728a.htm. Return to text