On July 2, the Federal Reserve Board approved a final rule implementing Basel III for banks. The final rule includes a revised definition of regulatory capital, new requirements for prompt corrective action framework, amends methodologies for determining risk-weighted assets and adopts changes to regulatory capital requirements. According to comments from Chairman Ben Bernanke, "this framework requires banking organizations to hold more and higher quality capital, which acts as a financial cushion to absorb losses, while reducing the incentive for firms to take excessive risks. With these revisions to our capital rules, banking organizations will be better able to withstand periods of financial stress, thus contributing to the overall health of the U.S. economy.
The final rule was amended from the proposed rule to particularly address concerns about the regulatory burden on smaller, less complex financial institutions such as community banks. Community banks will also have a significant transition period to meet the new requirements, which will not begin until January 2015. Large institutions will begin their “phase-in period” in January 2014. The press release can be found here.
While the rule applies for the banking side of the industry, NCUA is currently considering offering a related regulatory proposal later this summer.