The US Federal Reserve will not force banks to raise external capital more quickly than the timing specified in the Basel III international capital accords, but it will be vigilant in ensuring compliance, a top Fed official said on Friday.
Federal Reserve Board governor Daniel Tarullo also said the Fed would pursue measures beyond Basel III to reduce the risks of bank funding runs prompted by pressures in money market mutual funds and the tri-party repurchase market.
Tarullo told a meeting of banking lawyers that there was some uncertainty as to whether US regulators would try to "pull forward" the Basel III schedule for American banks to raise capital.
"While the Federal Reserve intends to ensure that firms are on a steady path to full Basel III compliance, we do not intend to require firms to raise external capital or reduce their risk-weighted assets in order to meet any target earlier than at the time specified in the Basel III transition schedule," Tarullo said.
But he said that the Fed intends to ensure that banks meet each Basel III target on time and will require larger banks to steadily improve their capital ratios during the transition period through earnings retention policies. The Fed will provide more guidance on this effort in coming weeks, he said.
He noted that the Basel III capital standards do not require global banks to reduce their use of wholesale funding and said that there are still risks of instability associated with this, with some pressures cropping up recently as a result the debt crisis in Europe, where banks rely more heavily on wholesale funding markets.
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