House Passes Bill to Lessen Financial Institutions’ Capital Requirements

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On February 27, 2018, the U.S. House of Representatives passed H.R. 4296, which would reduce the operational capital requirements imposed on financial institutions.  The bill passed with a 245-169 vote.  As could be expected from such deregulatory legislation, only 19 Democrats voted in favor of the bill and only 3 Republicans voted against it.

Specifically, the legislation tightens the circumstances under which Federal banking agencies can establish operational risk capital requirements for banking organizations.  Agencies may only do so if the requirement “(1) is based primarily on the risks posed by a banking organization’s current activities and businesses; (2) is appropriately sensitive to the risks posed by such current activities and businesses; (3) is determined under a forward-looking assessment of potential losses that may arise of out of a banking organization’s current activities, businesses, and exposures, which is not solely based on a banking organization’s historical losses; and (4) permits adjustments based on qualifying operational risk mitigants.”  H.R. 4296, 115th Cong. § 1(a) (as passed by the House of Representatives, Feb. 27, 2018).  “Banking organizations” are defined under the bill to include insured depository institutions, insured credit unions, depository institution holding companies, bank holding companies and U.S. intermediate holding companies established by foreign banking organizations.  Id. at § 1(b)(2).

The bill also amends Section 7(a)(3)(A) of the Federal Reserve Act, 12 U.S.C. § 289(a)(3)(A), to

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