Fed temporarily relaxes reserve capital requirements for large banks
US, WASHINGTON (ORDO NEWS) — The US Federal Reserve has eased reserve capital requirements for large banks to encourage leading financial groups to increase lending, according to the Financial Times.
The rule of “additional financial leverage”, adopted in 2013, required large banks with international portfolios to maintain a reserve capital of at least 3% of their total assets to cover losses. On Wednesday, the US central bank said that banks could exclude U.S. treasury bonds and deposits with the Federal Reserve Banks (FRB) from these calculations for a year – until March 31, 2021.
This decision is expected to help ease tensions in the treasury bond market and encourage banks to continue lending amid the downturn caused by the coronavirus pandemic.
The “additional financial leverage” rule applies to banks with assets in excess of $ 250 billion. It was developed by the US Central Bank after the financial crisis of 2007-2009 and aims to ensure that major financial institutions have additional protection against any future downturns.
The Fed said that excluding these safer investments from the calculation formula will allow banks to expand their balance sheets and continue lending.
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