Fed's First Step: Overhauling Bank Capital Requirements

The Federal Reserve is poised to embark on a significant revision of bank leverage rules, signaling the start of comprehensive reforms. According to Michelle Bowman, the Fed's Vice Chair for Supervision, the upcoming steps are crucial in addressing the capital requirements that have evolved over time and need reevaluation.

The proposed changes, which will be discussed in an upcoming meeting, aim to overhaul leverage requirements that have long hindered major banks. These rules currently compel banks to set aside capital without considering asset risks, a measure Bowman indicates has become onerous for financial institutions.

Bowman also suggests indexing certain regulatory requirements to the broader economy. Such reforms could help banks grow with the economy while maintaining stability, though she stresses the importance of preserving a solid capital base to ensure financial resilience.

(With inputs from agencies.)