Fed’s new capital buffer refocuses on risk

Low-risk activities and larger management buffers likely to become more attractive

Consequences of breaching capital conservation buffer include suspension of dividends and stoppers on bonuses

The US Federal Reserve’s proposed revisions to its capital framework would make risk-based capital requirements more volatile, bank analysts say, intensifying prudential and shareholder focus on risky assets while improving the comparative appeal of low-risk activities.

The proposal, released on April 10, would replace the capital conservation buffer – currently fixed at 2.5% – with a ‘stress capital buffer’ equivalent to a bank’s worst-case losses in the Fed’s annual Comprehensive Capital

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