FEDERAL GOVERNMENT RELATIONS
Bullard to Exit St. Louis Fed
James Bullard, president and CEO of the Federal Reserve Bank of St. Louis, announced Thursday that he will step down Aug. 14 to become the inaugural dean of the Mitchell E. Daniels Jr. School of Business at Purdue University. First VP and COO Kathleen O’Neill Paese has assumed the duties of interim CEO in preparation for Bullard's exit. The bank's board of directors has formed a search committee to find a replacement.
Fed’s Barr Proposes Expanding Capital Requirements to Include More Banks
Federal Reserve Vice Chairman for Supervision Michael Barr said Monday that regulators would propose strengthening capital requirements for banks with more than $100 billion in assets, including creating a new long-term debt requirement. During a speech at the Bipartisan Policy Center in Washington, D.C., Barr said his review of capital standards began before the recent bank failures, but those events expanded the range of banks the Fed ultimately proposed should be subject to the heightened standards.
An “important aspect” of the proposals will be to implement the changes to the risk-based capital requirements, referred to as the Basel III endgame, Barr said. The proposed rules would end the practice of relying on banks’ estimates of their own risk and instead use “a more transparent and consistent approach.” They would also adjust the way that a firm measures market risk concerning its trading activities, and – for operational losses – replace an internal modeled operational risk requirement with a standardized measure. In Barr’s view, including banks and bank holding companies with more than $100 billion in assets is appropriate given the proposed rules will be less burdensome to implement compared to current requirements “since they don't require a bank to develop a suite of internal credit risk and operational risk models to calculate regulatory capital,” he said.
A related proposal would introduce a long-term debt requirement for all banks above $100 billion, Barr said. “Long-term debt improves the ability of a bank to be resolved upon failure because the long-term debt can be converted to equity and used to absorb losses. Such a measure would reduce losses borne by the Federal Deposit Insurance Corporation's Deposit Insurance Fund, and provide the FDIC with additional options for restructuring, selling or winding down a failed bank,” he added.
Barr also reviewed the Fed’s stress test framework and concluded that while it was generally sound, “we should review our global market shock and the stress test's approach to estimating operational risk so that they provide a complementary lens to our risk-based standards on market risk and operational risk, respectively.” More than a decade of stress testing and “real-life surprises” such as the pandemic made it clear that stress tests must be stressful to adequately prepare banks for unanticipated events, he said. The vice chairman also noted that the agency plans to open the proposals to public comment in the near future.
Fed Ending Coin Allocation Limits
The Federal Reserve said the Reserve Banks are returning to regular coin distribution for all coin denominations, effective July 17.
Order limits will be removed for quarters, the last denomination to have coin order limits in place. Financial institutions will be able to place orders for coin from the Federal Reserve without limits starting with orders placed today, July 14, for pick-up on Monday.