Fed’s new capital buffer refocuses on risk
Low-risk activities and larger management buffers likely to become more attractive
The US Federal Reserve’s proposed revisions to its capital framework would make risk-based capital requirements more volatile, bank analysts say, intensifying prudential and shareholder focus on risky assets while improving the comparative appeal of low-risk activities.
The proposal, released on April 10, would replace the capital conservation buffer – currently fixed at 2.5% – with a ‘stress capital buffer’ equivalent to a bank’s worst-case losses in the Fed’s annual Comprehensive Capital
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