he Federal Reserve Board last month reduced compliance requirements for smaller and mid-size banking institutions while maintaining more stringent risks for others the Fed says pose greater systemic risk. The proposal, the Fed said, “would more closely match the regulations for large banking organizations with their risk profiles.” The Fed’s framework establishes four categories of standards for large banking organizations--those with more than $100 billion in total consolidated assets. The changes would significantly reduce regulatory compliance requirements for firms in the lowest risk category, modestly reduce requirements for firms in the next lowest risk category, and largely keep existing requirements in place for the largest and most complex firms in the highest risk categories. Firms would be sorted into categories based on several factors, including asset size, cross-jurisdictional activity, reliance on short-term wholesale funding, nonbank assets, and off-balance sheet exposure. The Fed’s proposal raises concern that capital will be removed from the markets and increase the risk of another taxpayer bailout if the economy falters, Bloomberg reported. The new rules, according to the , could remove $8 billion in overall capital from the industry. Meanwhile, the major banking agencies are seeking public comment on a to update their standards for how firms measure counterparty credit risk posed by derivative contracts under the agencies’ regulatory capital rules. The proposed changes are designed to better reflect the current derivatives market and incorporate risks observed during the 2007-2008 financial crisis, the agencies say.