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    Yearlong capital relief for large banks to end on March 31: US Federal Reserve

    Yearlong capital relief for large banks to end on March 31: US Federal Reserve

    Yearlong capital relief for large banks to end on March 31: US Federal Reserve
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    By CNBCTV18.com  IST (Updated)

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    Though the banking industry lobbied for an extension of the relief, the Fed refused to budge, stating that the Treasury market had stabilised.

    In a setback for the banking industry, the United States Federal Reserve will end the emergency relief provided to big banks at the outset of the COVID-19 pandemic last year to ease their capital requirements on March 31. The decision comes at a time when several Wall Street firms are lobbying for an extension of the same, according to The Wall Street Journal.
    During the pandemic last year, regulations were eased temporarily to the supplementary leverage ratio (SLR). This gave banks the flexibility in choosing the kind of assets they could hold to meet regulatory’ requirements. It came at a time when the banks had to suddenly write down billions of dollars of loans.
    Though the banking industry lobbied for an extension of the relief, the Fed refused to budge, stating that the Treasury market had stabilised.
    According to a note on the Federal Reserve’s official website, dated March 19, the central bank would explore a more permanent overhaul to the rules. It stressed that overall capital requirements for big banks wouldn’t decline.
    The note read, "Additionally, the Board will shortly seek comment on measures to adjust the SLR. The Board will take appropriate actions to assure that any changes to the SLR do not erode the overall strength of bank capital requirements."
    As per the regulations, the SLR needs big US banks to maintain capital equivalent to at least 3 percent of their assets. As per the rule change last year, lenders could temporarily exclude holdings of US Treasuries and cash kept in reserve at the central bank from their assets while calculating the ratio.
    Now, March 31 onwards, banks will lose their temporary ability to exclude Treasuries and deposits held at the central bank from lenders’ so-called supplementary leverage ratio.
    The decision could force the banks to hold more capital or reduce their holdings of those assets, both of which could have a ripple effect in the markets. So, the Wall Street firms warned that they could be forced to push away clients, issue new debt or reduce shareholder payouts if the Fed didn’t extend the relief.
    An executive said they would be watching regulatory guidance on what the permanent changes would be, and how fast they could be in place, before making any significant changes to their operations.
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