Yet, because of the complex way our capital regulations work together—with risk-based constraints and stress tests regulating capital at both the operating and holding company levels—this improvement in incentives is obtained with virtually no change in the overall capital requirements of the affected firms.
Federal Reserve staff estimate the proposal would potentially reduce capital requirements across the eight large banks subject to the proposal by $ million, or 0.04 percent of the $ billion in capital these banks held as of September 2017.2 So this recalibration is a win-win: a material realignment of incentives to reduce a regulatory encouragement to take on risk at a time when we want to encourage prudent behavior without any material capital reduction or cost to the system’s resiliency.