US Fed’s Michael Barr Proposes Changes To Bank Capital Needs, Bitcoin Surges

Crypto Market News: The US Federal Reserve’s Vice Chair for Supervision Michael S. Barr on Monday delivered the speech on capital for large banks. He remarked that there was need for actions to make banks resilient to unanticipated risks, referring to the recent regional banking crisis that hit several small banks in the United States. Barr mentioned that the bank runs similar to that of the Silicon Valley Bank (SVB) in March 2023 caused significant stress in the banking system. Learning from the recent bank runs, the Fed Vice Chair spoke about considering changes to how liquidity is supervised, and how interest rate risk, and incentive compensation are regulated.

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Meanwhile, the Bitcoin price showed volatile movement in response to Barr’s initial remarks on the banking sector reforms. After managing to hold support at the $30,000 over the weekend, the top cryptocurrency could pick up further following the Fed Vice Chair’s proposed changes in the direction of long term macroeconomic stability in the United States’ banking system.

Strong Capital Rules For US Banks

In a first, Barr proposed that changes to rules ending the practice of relying on banks’ individual estimates of their own risk. Instead, he proposed that the banks use a more transparent and consistent approach, in light of the recent bank runs. Hence, he stated that standardized credit risk approaches are a reasonable option to supervise stress tests. It may be recalled that the three banks — Silicon Valley Bank, Signature Bank and First Republic Bank — all saw depositors withdrawing assets en masse, putting the US banking stocks at immense stress between March and April 2023.

With regard to the risk associated with large banks, Barr said,

“The proposed adjustments would require banks with assets of $100 billion or more to account for unrealized losses and gains in their available-for-sale (AFS) securities when calculating their regulatory capital.”

Also, the Fed Vice Chair proposed changes to the way the risk of loss from movements in market prices, such as interest rate, equity price, foreign exchange, and commodities risk is measured.

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