Sweeping bank overhaul is set
Smaller institutions will face the same kind of requirements reserved for the largest lenders agency officials.
The plan would result in midsize firms such as Regions Financial Corp., KeyCorp and Huntington Bancshares Inc. encountering the kind of stringent requirements that had been reserved for the largest lenders.
The long-awaited U.S. reforms are tied to Basel III, an international overhaul that started more than a decade ago in response to the financial crisis of 2008. The issue became more stark this year with the failures of Silicon Valley Bank and Signature Bank in March, and First Republic Bank in May.
“One clear message was that regulatory requirements, including capital requirements, must be aligned with actual risk so that banks bear the responsibility for their own risk-taking,” Fed Vice Chair for Supervision Michael Barr said in a statement. “The
U.S. regulators unveiled plans to impose even tighter capital rules on big banks, setting up a battle with the industry over whether the push for financial stability will make the country's lenders less competitive.
The measures released Thursday by the Federal Reserve, Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency would force lenders to thicken their cushions to absorb unexpected losses. Banks with at least $100 billion in assets would have to boost the amount of capital set aside by an estimated 16%. The eight largest banks face about a 19% increase, with lenders between $100 billion and $250 billion in assets seeing as little as 5% more, according to proposal takes an important step toward better aligning capital requirements with risk.”
The key proposals were close to what Barr and other regulators had told the markets to expect. Banks stocks barely budged after the announcement. The KBW Bank Index rose less than 1% as of midday.
Wall Street's biggest banks have been preparing for the regulations
Michael Barr, vice chair for supervision of the board of governors of the Federal Reserve, testifies during a House Committee on Financial Services hearing on recent bank failures, on Capitol Hill in Washington, D.C., in March. to wipe out almost all of the excess capital they stashed away over the past decade, likely crimping shareholder buybacks for years to come.
Six of the top U.S. banks — JPMorgan Chase & Co., Bank of America Corp., Citigroup Inc., Wells Fargo & Co., Morgan Stanley and Goldman Sachs Group Inc. — are sitting on an estimated $118 billion in so-called excess common equity tier 1 capital, according to Bloomberg Intelligence. But that cushion could be nearly erased under the proposal, Bloomberg Intelligence found.
FDIC Chair Martin Gruenberg said on Thursday that most banks would have enough capital to meet the proposed mandates, but five could face shortfalls. The agency estimates that it would take those banks about two years to make up for that shortfall even if they continue paying out dividends, assuming they continue producing profits at the same rate as they have in recent years.
The FDIC held an open meeting in the morning to discuss the plans, ahead of the Fed's meeting at 1 p.m. Once the rules are formally proposed by both agencies, regulators will take public comment and then must vote again later to finalize them.
Under the proposal, midsize banks would now have to include unrealized gains and losses from some securities in their capital ratios.