File - A view shows the Federal Reserve building in Washington August 22, 2012. REUTERS/Larry Downing
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The Federal Reserve may scrap international measures which are aimed at assessing bank health in favor of imposing its own rules, frustrating bankers who have spent billions of dollars retooling their books to meet global standards.Fed officials are concerned that parts of a key tool that regulators have developed to measure banks' riskiness – known as "Basel III capital rules" – are flawed and can be gamed by the companies.Instead of the Basel rules, Tarullo promoted the use of the Fed's own yardstick of bank health, a test of how bank assets would perform during market turmoil or an economic slump.The Fed's decision to emphasize a different process for evaluating risk is maddening to banks, who complain that the Fed's tests are opaque.The Fed and other regulators are charged with maintaining the health of the financial system, not maximizing bank profits.Regulators may have reason to be alarmed about the way banks are measuring asset risk. Investors unsure about bank-asset values took comfort that regulators were checking that banks would be solvent during a crisis.Banks including Citigroup Inc. and Bank of America Corp. have been embarrassed to have had capital plans rejected by the Fed.Even if one bank's model is not the best, the person said, models from the top 150 banks in aggregate are likely better than a single model from one regulator.
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