The US Federal Reserve said Tuesday that it was delaying by two years tighter limits on banks capital adequacy guidelines because of turmoil in the financial system. The new limits for bank holding companies are now scheduled to take effect on March 31, 2011.
"Due to the continuing stressed conditions in the financial markets and in order to promote stability in the financial markets and the banking industry as a whole," the central bank said. The move delays tighter requirement announced in March 2005 on capital requirements, the key measure of a banks financial health.
The change delays how a bank can count preferred stock and securities - such as those injected by the US Treasury to steady the financial system - in it core capital. These changes would have limited such securities to 25 percent of a banks capital base.
"The economic conditions for the past 18 months, and currently, have created a situation in which requiring adherence to the new limits by the March 31, 2009, effective date creates a substantial burden for many (bank holding companies) in a way that was not anticipated when the final rule was adopted in 2005," the Fed said.