WASHINGTON (7/3/13)--Rules to implement Basel III regulatory capital reforms in the United States were approved by the Federal Reserve Tuesday.
The Fed said in a release the final rule "minimizes burden on smaller, less complex financial institutions."
The international bank rules, which will require banks to hold more capital as a buffer against future financial shocks, do not apply to credit unions in the United States. In general, the Basel III standards are intended to apply to "internationally active" banks, but some jurisdictions choose to apply Basel III to a wider range of banking institutions and/or credit unions. Australia, several Canadian provinces, and some Latin American countries apply Basel-based standards to credit unions.
The Fed intends the capital reforms to "help ensure banks maintain strong capital positions that will enable them to continue lending to creditworthy households and businesses even after unforeseen losses and during severe economic downturns."
Basel III standards for banks in the United States will require common equity of 4.5%. Banks also must hold a 2.5% conservation buffer, which will be gradually introduced, and to increase their Tier 1 levels from 4% to 6%. The rule includes a minimum leverage ratio of 4% for all banking organizations.
The phase-in period for smaller, less complex banking organizations will not begin until Jan. 2015 while the phase-in period for larger institutions begins in Jan. 2014, the Fed said.
For more on Basel III, use the resource link.