Varying Estimates for Capital Relief Plan from Fed, OCC
Varying Estimates for Capital Relief Plan from Fed, OCC

The Federal Reserve Board and the Office of the Comptroller of the Currency (OCC) released a plan last month to replace a static leverage ratio with a more dynamic measurement at Systemically Important Financial Institutions (SIFIs). However, upon its announcement, the Federal Deposit Insurance Corporation (FDIC) rejected the plan, alleging it was ineffectual and gave too much capital relief, in turn unleashing too much systemic risk.

Now, according to an article in American Banker, the sparring institutions have released their capital relief estimates, and the chasm between the two is jarring. The piece says that the Federal Reserve and OCC believe that such a change in measurement will only decrease capital levels at SIFIs by $400 million. However the FDIC noted that within the Fed’s published estimation, there will be a $121 billion decline in retained capital at the insured depository institutions within those holding companies.

Both analyses make certain simplifying assumptions. The FDIC measures the impact at the individual subsidiaries within the bank, while the Fed attempted to also measure how such capital reductions would also interact with risk-based capital requirements and stress tests, alleging that most of the FDIC’s estimate would merely be displaced elsewhere within the company. While the FDIC estimate assumes the entire $121 billion sum will depart the banks’ balance sheets, while the Fed estimate neglects other exogenous factors, a realistic estimate for capital relief as a product of the new, dynamic leverage ratio is most likely somewhere betwixt the two.

Read More
wagers
Terms and Conditions | Privacy Policy