Fed tweaks capital buffer rule to ensure restrictions on banks are gradual

By Pete Schroeder

WASHINGTON (Reuters) – The U.S. Federal Reserve announced Monday that it was making a tweak to its rules to make sure that banks face gradual restrictions on activities as they dip into one of their capital buffers.

The interim final rule updates rules around banks’ “total loss absorbing capacity” buffers, which is an extra cushion banks keep on their books to guard against future losses. The change ensures that restrictions on capital payouts by banks are imposed gradually as banks dip further into their buffer, which the Fed said will help ensure banks continue lending.

The move is the latest in a series of numerous changes, clarifications, and easings to rules that regulators have made, in their effort to ensure banks keep lending and do not curtail their efforts to aid struggling borrowers over supervisory concerns.

The announcement follows a Sunday night move by bank regulators, including the Fed, to clarify that bank examiners will not look harshly at bank efforts to modify loans for borrowers struggling amid the pandemic, so long as they are made in a “safe and sound” manner. Banks will not be required to categorize such relief as “troubled debt restructurings,” which typically require banks to carry more capital to offset the risk.

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