WASHINGTON — The Federal Reserve Board is proposing regulations that would raise the amount of capital that banks must hold and require banks with riskier investments to have more capital than banks engaged in more conservative activities.
The Fed agreed Wednesday to seek public comment on the proposal that would supplement existing regulations governing the amount of capital that banks must have on hand to absorb unanticipated losses and ensure the safety of depositors' funds.
"This is simply another tool to deal with some of the shortcomings of our existing tools" for gauging the financial stability of banks, Fed Chairman Paul A. Volcker said. "The thrust of this moves in the right direction," he said.
The proposed regulations are needed to ensure the financial health of banks that are making riskier loans, which carry higher interest rates and the potential of higher profits. However, riskier loans pose a greater threat to a bank's financial stability because of the potential for loss.