The Federal Reserve on Thursday finalized a set of rules in a 7-0 vote that requires large banks to hold more capital against their trading books.
The market risk capital rules, effective Jan. 1, 2013, are intended to force big banks to better capture the risk posed by complex financial products. They are a result of international cooperation with the Basel Committee on Banking Supervision.
However, they do not include elements of the Basel Committee's market risk framework that rely on credit ratings. The exclusion is consistent with the Dodd-Frank Act, which mandates that regulators no longer rely on credit ratings firms, considering their questionable actions during the run-up to the 2008 financial crisis.
Instead, the rules include alternative standards of creditworthiness for determining specific risk capital requirements for certain debt and securitization positions.
“The final rule will better capture positions for which the market risk capital rule is appropriate, reduce procyclicality in market risk capital requirements, enhance sensitivity to risks that are not adequately captured by the current regulatory methodologies, and increase transparency through enhanced disclosures,” the Fed said in a statement.
The new rules apply to bank holding companies and state-chartered banks that are members of the Federal Reserve system.
Also on Thursday, the Fed proposed applying the market risk capital rules to savings and loan holding companies that meet the thresholds described in the final rule.