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Fed simplifies capital rules for large banks

The Federal Reserve Board on Wednesday approved a rule to simplify its capital rules for large banks, preserving the strong capital requirements already in place.

The "stress capital buffer," or SCB, integrates the Board's stress test results with its non-stress capital requirements. As a result, required capital levels for each firm would more closely match its risk profissuesile and likely losses as measured via the Board's stress tests. The rule, which will be effective 60 days after publication, is broadly similar to the proposal from April 2018, with a few changes in response to comments. By combining the Board's stress tests—which project the capital needs of each firm under adverse economic conditions—with the Board's non-stress capital requirements, large banks will now be subject to a single, forward-looking, and risk-sensitive capital framework. The simplification would result in banks needing to meet eight capital requirements, instead of the current 13.

A firm’s first stress capital buffer requirement, as determined under the final rule, will be effective October 1, 2020.

Also on Wednesday, the Board released the instructions for the 2020 CCAR cycle. The instructions confirm that 34 banks will participate in this year's test.

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