By Andrew Ackerman 

WASHINGTON -- The Federal Reserve retooled capital rules for the largest U.S. banks, completing one of the biggest changes to the postcrisis rulebook for Wall Street during the Trump administration.

Fed officials on Wednesday said the changes would simplify rules for big banks such as JPMorgan Chase & Co. and Wells Fargo & Co. without posing risks to the stability of the financial system.

The overhaul "simplifies the post-crisis capital framework for banks, while maintaining the strong capital requirements that are the hallmark of the framework," Fed Vice Chairman for Supervision Randal Quarles said in a statement.

The overhaul reflects the latest moves by the Fed to recalibrate oversight of big U.S. lenders. Already, officials have completed separate changes aimed at easing liquidity and capital rules for regional U.S. banks and retooled speculative trading limits for large firms.

Fed governor Lael Brainard, an Obama-era appointee, cast the sole dissenting vote against the plan, saying she believed it would reduce banks' required capital levels and the amount they set aside as a buffer above their regulatory requirements.

In a statement, she said the plan "gives a green light for large banks to reduce their capital buffers materially, at a time when payouts have already exceeded earnings for several years on average."

Ms. Brainard said she expects a reduction in capital largely because the overhaul requires banks to set aside funds for dividend payments for four quarters, down from the current nine.

But Mr. Quarles said the changes would maintain the overall level of capital in the system and modestly increase required capital levels for the largest firms. His estimates were based on stress-test data from 2013 to 2019, he said.

Parts of the overhaul are likely to be welcomed by big banks, including changes that streamline aspects of stress tests, which require 34 large banks to show how they would weather simulated market and economic shocks.

Wednesday's plan reduces the total number of big-bank capital requirements to eight from 13, the Fed said. For large Wall Street firms, those changes could be offset by a new "stress capital buffer."

Banks' annual stress-test results would be used to calculate the size of the new buffer, which the firms would have to meet during the ensuing year. If a firm's capital fell below this level, it would face limits on its capital distributions and bonus payments.

Under the Trump administration, regulators have sought to soften the impact of the 2010 Dodd-Frank law, which was intended to prevent another financial crisis, saying its requirements were too stringent and inflexible.

A law signed by President Trump in 2018 rolled back restrictions for banks with less than $250 billion in assets and served as the impetus for further regulatory changes.

Some of Wednesday's changes incorporate adjustments sought by banks. The Fed's stress tests would assume lenders restrain growth in their balance sheets during stressful periods, which doesn't happen under current rules. That would likely have the effect of boosting banks' capital levels in the stress tests.

The Fed held off on making some changes to the stress tests envisioned by Mr. Quarles, such as incorporating a dormant policy tool to combat credit crunches in a downturn known as the countercyclical capital buffer. The Fed would have to separately propose such changes.

Write to Andrew Ackerman at andrew.ackerman@wsj.com

(END) Dow Jones Newswires

March 04, 2020 19:04 ET (00:04 GMT)

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