FORTUNE — The Federal Reserve voted Tuesday to approve rules that will require banks to hold more capital against the loans they make or risky assets they buy. The rules, proposed in the Dodd-Frank banking reform law, are a result of the financial crisis, when a number of banks didn’t have enough capital to cover their bad loans, and had to be bailed out by the government.
Perhaps the biggest disappointment for proponents of banking reform rules will be the fact that mortgages and mortgage bonds will get roughly the same treatment under the new rules as they did before the financial crisis. The Fed had initially proposed that banks be required to hold more capital against loans that were deemed to be riskier, mostly measured by the size of a borrower’s downpayment. But a number of bankers complained this would restrict mortgage lending and hurt the housing recovery.
The Fed’s final proposal sticks with its old rules for mortgages. But a Fed official said banks would essentially be required to hold more capital against mortgage loans, because the new rules require banks to hold more capital to cover all losses. And that includes mortgages. Still, hypothetically under the new rules, a bank making a $200,000 subprime mortgage would have to hold just $7,000 to cover the possibility of the home loan going unpaid.
The new rules would require banks to raise an additional $4.5 billion of capital, according to the Fed’s analysis, by the time the regulations go into effect in early 2015. The Fed did not say which banks would need to raise capital, though it’s widely believed that most of the banks that don’t currently comply with the rules are relatively small. According to the Fed, 95% of the nation’s banks with $10 billion in assets or more had enough capital to meet the new minimum requirements. Citigroup (C), the smallest of the nation’s largest four banks, has assets worth $1.3 trillion.
Perhaps the biggest rule change is a new supplementary capital requirement that will test how much capital banks hold against all their assets, including derivatives. That would include credit default swaps, the bond insurance-like contracts that swamped insurer AIG (AIG), and are generally believed to have made the financial crisis worse.
In the past, derivatives have been largely excluded from the capital rules in the U.S. but European bank regulators have previously included some derivatives in their calculations. The new rules would require banks to hold enough capital to cover a 3% drop in all their assets, which includes loans, any stocks and bonds or other investment they may hold, as well as derivatives. The rules generally follow the so-called Basel III banking requirements that were proposed by international banking regulators a few years ago.
Last month, FDIC vice chairman Thomas Hoenig said that if derivatives were included in the capital rule calculations, a number of large international banks would fall short of what was needed. The only U.S. bank that Hoenig felt wouldn’t meet the requirements was Morgan Stanley (MS), which, according to Hoenig’s calculation, had enough capital to cover only a 2.55% drop in its total assets. Swiss bank UBS (UBS) and French banks Credit Agricole (CRARY), and Societe Generale (SCGLY) also came up short. But Hoenig’s calculations only factored in so-called tangible capital, excluding assets that banks count on their balance sheet, but are hard to sell. The new rules appear to give banks credit for those types of capital in the Fed’s calculations.
Excluding derivatives, banks would have to hold enough capital to cover a 4% drop in their remaining assets — generally called the leverage ratio. That’s less than the 6% some had recently speculated the Fed would require. According to a recent report from Goldman Sachs, nearly all of the nation’s largest banks would be able to meet the 4% threshold. Only Bank of New York (BK) would fall below that level with 3.9%. Morgan Stanley was the next lowest bank, with a leverage ratio of 4.5%.