Central Banks

Fed considers using counter-cyclical buffer for banks – report

Banks would need to hold more capital in a hot economy

Fed officials are considering deploying a provision that would force banks with more than $250 billion in assets to hold more loss-absorbing capital.

“Some Fed officials are debating whether it is time to use the tool,
which could provide banks with additional lending firepower in a
subsequent downturn. It isn’t clear when they might make a decision,” the report says.

That’s negative news for bank stocks but it could be reassuring for those worried about economic risks.

One option is ‘turning on’ the buffer while leaving it at current levels. That would signal the Fed is willing to use it. The report also highlights that the buffer could be lowered.


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