Today, Federal Reserve Governor Daniel K. Tarullo delivered a speech that, among other things, provided a preview of the forthcoming proposal to implement the GSIB risk-based capital surcharge.
While our proposal will use the GSIB risk-based capital surcharge framework developed by the BCBS as a starting point, it will strengthen the BCBS framework in two important respects. First, the surcharge levels for U.S. GSIBs will be higher than the levels required by the BCBS, noticeably so for some firms. Second, the surcharge formula will directly take into account each U.S. GSIB’s reliance on short-term wholesale funding. We believe the case for including short-term wholesale funding in the surcharge calculation is compelling, given that reliance on this type of funding can leave firms vulnerable to runs that threaten the firm’s solvency and impose externalities on the broader financial system.
Materials: Governor Daniel K. Tarullo, Testimony on Dodd-Frank Implementation (Sept. 9, 2014), available here: http://www.federalreserve.gov/newsevents/testimony/tarullo20140909a.htm