Favorable regulatory developments for banks' capital efforts
Recall that the Federal Reserve, the Federal Deposit Insurance Corp., and the OCC sought a deadline of Jan. 1, 2013, by which banks would have to be in compliance with new capital guidelines from the Basel III accord. Banks made clear that they did not have enough time to comply, and the regulators have heard them loud and clear.
"In light of the volume of comments received and the wide range of views expressed during the comment period, the agencies do not expect that any of the proposed rules would become effective on January 1, 2013. As members of the Basel Committee on Banking Supervision, the U.S. agencies take seriously our internationally agreed timing commitments regarding the implementation of Basel III and are working as expeditiously as possible to complete the rulemaking process," the regulators said in a release.
A new deadline date was not announced. Meanwhile, the Federal Reserve Board has decided to give the 19 banks a less onerous process toward passing the annual stress tests, which have proven so vexing for banks like Citigroup and Bank of America. The new process will give banks that "fail" a chance to amend their capital return plans in ways that will allow them to pass. The idea is make the process less of an all or nothing proposition for the likes of Citigroup, which would have passed this year if it wasn't planning such aggressive dividends payments.
Bloomberg notes that the Fed also intends to publish the result of banks' initial capital proposal, "showing how far the firms missed in their first attempt. A severe shortfall on the first attempt will generate greater scrutiny of a bank's capital planning process by regulators, according to a bank supervisor who declined to be identified because the tests are not completed. Even banks that pass the minimum stress ratio could fail if the Fed detects their capital planning process is flawed."
All in all, these are good regulatory development for the top banks, whose still face some mild skepticism in terms of their capital ratios going forward.