Parkinson, director of the central bank’s division of banking supervision and regulation, told a gathering of bankers today that while asset quality is “stabilizing,” the “conditions in real estate markets are still very difficult” and the banking system is “still in the repair and recovery stage.”
The central bank is implementing a regulatory overhaul that creates a process for unwinding large financial institutions, restricts banks’ trading for their own accounts and requires tougher oversight of firms deemed essential to financial stability. The new rules are part of the Dodd-Frank Act, signed into law by President Barack Obama in July.
Bank regulators use a system known as Camels, an acronym for capital adequacy, asset quality, management, earnings, liquidity and sensitivity to market risk. Firms are rated in each category, with 1 the best and 5 the worst. Banks with ratings of 3, 4, or 5 are considered “less than satisfactory.”
Parkinson’s 30 percent figure includes commercial banks and excludes thrifts and savings banks, Barbara Hagenbaugh, a Fed spokeswoman, said in an e-mail.
Parkinson said that additional capital requirements for banks with more than $50 billion in assets will be increased in proportion to a bank’s size to “reflect the degree of systemic risk that individual banking organizations seem to pose.”
“Nobody really regards $50 billion as systemically risky,” he said. “We have to come up with some charge, but thank God there’s this gradation provision” in the Dodd-Frank law, he said.
“We’re not going to treat a $54 billion bank holding company as if it were Citigroup, Bank of America or JPMorgan,” he said in response to questions at the American Bankers Association annual government relations summit in Washington.
Additional capital requirements would be “nominal” for smaller banks, he said.
“Definitely we intend to gradate, and the gradation will be significant, it will have the effect that the very smallest firms above $50 billion will not have to worry about large systemic charges.”
Separately, the Fed has ordered the 19 largest U.S. banks to test their capital levels against a scenario of renewed recession and determine how their loans, securities, earnings and capital would perform during at least three possible economic outcomes.
The banks, including some seeking to increase dividends cut during the financial crisis, submitted their plans in January. The review is scheduled to be finished this month.
Fed Chairman Ben S. Bernanke is on the newly created Financial Stability Oversight Council, led by Treasury Secretary Timothy F. Geithner. The council is charged with averting another financial crisis and will collect data that can be used to compel firms to raise capital, increase liquidity and sell assets deemed too concentrated in any part of the economy.
Regulators worldwide are making progress on implementing regulations including capital standards and supervisory assessments for the most important global financial firms, Parkinson told reporters after the speech. “I am still optimistic we will come up with something internationally,” he said.
“I don’t think internationally we’re ever going to be talking about $50 billion banks” as posing a major threat to financial stability, he said.
To contact the reporter on this story: Joshua Zumbrun in Washingtont ;
To contact the editor responsible for this story: Christopher Wellisz at firstname.lastname@example.org;