The Federal Reserve may close a loophole that allows some midsize banks to effectively mask losses on securities they hold, a contributing factor in the collapse of Silicon Valley Bank, the Wall Street Journal reported. Led by vice chair for supervision Michael Barr, the Fed is considering ending an exemption that allows some banks to boost the amount of capital they report for regulatory purposes. Capital is the buffer banks are required to hold to absorb potential losses. Regulators are weighing the change after the sudden collapses last month of SVB and Signature Bank rattled the financial system. If adopted, it would reverse a loosening of rules by the Fed in 2019 and heighten oversight of midsize banks by extending restrictions that currently only apply to the largest, most complex firms. All told, regulators are considering extending toughened restrictions to about 30 companies with between $100 billion and $700 billion in assets, the people said. A proposal could come as soon as this summer, and any changes would be phased in, potentially over a couple of years.
