Joint Trades Letter on the Revised Bank Capital Proposal

Ladies and Gentlemen:

The Bank Policy Institute, the American Bankers Association, the U.S. Chamber of Commerce, and the Consumer Bankers Association submit this letter in response to the joint notice of proposed rulemaking issued by the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency that would amend the calculation of regulatory capital and the standardized approach for all firms other than Category I and II firms and firms that elect to apply the expanded risk-based approach.

We support the agencies' tailored approach to capital requirements embodied in the proposal and the concurrent proposal to implement the 2017 Basel III standards, which would apply to Category I and II firms (and, with respect to market risk and CVA risk requirements, certain other firms with significant trading activity) with the ability for other firms to opt into the expanded risk-based approach under that other proposal. As the calibration of the revised risk weights in the standardized approach proposal is based in part on analysis of the risk weights that would apply under the Basel III proposal, we encourage the agencies to update the calibration in the revised standardized approach based on the final version of the expanded risk-based approach.

We also support the agencies' goals of improving the calibration and risk sensitivity of the capital framework with respect to firms' core lending activities. This letter contains recommendations aimed at further improving the calibration and risk sensitivity of the proposed revised standardized approach, as well as recommendations for how the proposal could be revised to reduce unnecessary operational burden on firms. In general, we appreciate the detailed explanations and impact analysis provided in the proposal, which have enabled us to more effectively evaluate the proposal and provide the recommendations in this letter. However, this letter also discusses issues arising from the proposed revisions to the definitions of "commitment," "unconditionally cancelable," "traditional securitization," and "synthetic securitization," which we strongly urge the agencies not to finalize in light of the ambiguity these proposed changes would create and the unassessed—and unassessable—effect they would have on firms' capital requirements. Apart from these changes, we encourage the agencies to finalize the proposal expeditiously, so firms and the broader economy can benefit from the improved risk sensitivity in the revised standardized approach.

The first section of this letter provides recommendations regarding the proposed changes to the requirements for credit risk. The second section provides comments on the proposed changes with respect to credit risk mitigants. The third section provides comments related to other aspects of the proposal.

Download the joint comment letter to read the full text.