The revised framework also aims to support credit flows to households and businesses. It would improve risk sensitivity in lending by recognizing loan-to-value ratios in mortgage capital requirements. It would also reflect repayment history in retail lending.
The proposal does not add new capital penalties for mortgages or consumer lending. It also seeks public feedback on the role of private mortgage insurance. In addition, it would align business lending requirements more closely with borrower credit quality.
For operational risk, the framework introduces standardized requirements tailored to large US banks. Fee-based businesses, such as credit cards, would account for revenues and expenses on a net basis. Staff analysis found that wealth management and custody services have shown lower operational risk over time.
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The proposal also strengthens capital requirements for trading activity. Bowman said the method would better capture losses in stressed conditions and reflect the risk of less liquid positions. It also introduces a standardized calculation across firms while reducing the burden for banks with simple trading activities.
For derivatives, the framework adds a credit valuation adjustment requirement for banks with significant trading activity and material portfolios. This rule focuses on bilateral transactions among large financial firms. It avoids unintended costs for commercial end users, including farmers and manufacturers.
Bowman also said the Fed reviewed the overlap between stress testing and the risk-based framework. She noted that overlap can produce excessive requirements for some activities, even though stress testing adds useful risk sensitivity.