The Federal Reserve is getting industry requests to nail down a specific point in time--preferably soon--when it will reconsider its merchant banking capital rule. Under the rule banks would have to hold capital on a sliding scale linked to the amount of its equity investments. On April 16 the Securities Industry Association "strongly urged the agencies to set a specific date by which they will re-examine the need for these external capital charges." SIA, which has a commercial bank as well as Wall Street members, would prefer that bank internal models determine how much capital should be allocated to cover merchant banking risks.
Federal Reserve officials have talked of the current capital rule as a "bridge" to a period in which internal models would suffice but have not said how long it would take to cross that bridge. SIA would like the central bank to take a new look in two years, said an official of the trade group last week. "That would give them enough time to get experience with this and to see how it is working."