Fed will seek more capital from largest U.S. banks - Tarullo

By Patrick Rucker

WASHINGTON (Reuters) - The Federal Reserve will seek significantly more capital from the largest U.S. banks and give some relief to smaller banks as it considers reforms to its annual 'stress test,' Fed Governor Daniel Tarullo said on Monday.

The reforms will include a new capital 'buffer' to better protect the financial system from a shock at the nation's largest lenders like JPMorgan Chase, Bank of America and Wells Fargo.

"In pulling this package of modifications together, we have consciously shaped them in accordance with the principle that financial regulation should be progressively more stringent for firms of greater importance," Tarullo said in a speech at Yale University in New Haven, Connecticut.

Under the plan, some regional banks would face less scrutiny during the annual stress test. Those lenders will only undergo a 'quantitative' review of their systems.

More details of the capital plan for large banks will be offered next year, said Tarullo, who added that the proposal will not impact the 2017 stress test.

Tarullo has been a key architect of banking rules conceived since the 2007-2009 financial crisis and helped write the fine print of the 2010 Dodd-Frank Wall Street reform law.

The Fed's annual 'stress test' of leading banks has been a sweeping new standard, and Monday's proposed reforms will mean different things depending on the size of the bank.

A handful of the nation's largest banks would have to satisfy a new "stress capital buffer" that would require more stock or other capital to be held against a possible downturn.

Those rules would likely mean new costs for the nation's largest banks, which largely got a thumbs-up from the Fed during the last 'stress test' in June.

The plan would be good news for leading regional banks that have argued for years that they do not deserve the same costly scrutiny faced by the largest Wall Street firms.

(Reporting by Patrick Rucker; Editing by Paul Simao)