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The United States Federal Reserve has passed out a number of new rules that reduce requirements of liquidity and capital for most banks in the country in addition to easing out various restrictions in the industry.
According to reports, Jay Powell the chair of the Federal Reserve made the announcement on the new rules, which he called bank tailoring, which means that different banks will have to abide by different measures on the basis of their assets and sizes.
Jay Powell spoke about the development: “The rules maintain the fundamental strength and resiliency that has been built into our financial system over the past decade. Congress and the American people rightly expect us to achieve an effective and efficient regulatory regime that keeps our financial system strong and protects our economy, while imposing no more burden than is necessary.”
New Rules to Aid Smaller Banks
However, the new rules were not passed unanimously. Lael Brainard, a board member of the Fed opposed the decision made by Powell. She stated: “Today’s actions go beyond what is required by law and weaken the safeguards at the core of the system before they have been tested through a full cycle. At a time when the large banks are profitable and providing ample credit, I see little benefit to the banks or the system from the proposed reduction in core resilience that would justify the increased risk to financial stability in the future.”
According to the terms of the new rules, the largest banks in the country will not be allowed to lower their requirements for capital. However, small scale banks will be able to operate even with a 0.6 per cent reduction in capital and a 2 per cent reduction in liquid assets.
Further, select large regional banks will not have to go through the older stress test regulations any longer, or create models for impacts of adverse scenarios. However, all banks will still have to create models for very adverse scenarios. In addition foreign banks will require reserves for 25.5 days instead of the original 30.