KEY - U.S. regulators propose increasing capital requirements for large U.S. banks
2023-07-27 13:23:30 ET
The three big U.S. banking regulators on Thursday jointly proposed to strengthen regulations across a broader range of U.S. banks, namely applying to all institutions with more than $100B of assets, in the so-called "Basel III endgame."
The proposal doesn't affect capital requirements at smaller, less complex organizations, such as community banks.
"The proposal would improve the resilience of the U.S. banking system by modifying capital requirements for large banking organizations to better reflect their risks and apply more transparent and consistent requirements across large banking organizations," the Federal Reserve Board, Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation said.
The changes are estimated to result in an aggregate 16% increase in common equity tier 1 capital requirements for the affected companies, with the increase principally affecting the largest and most complex banks, the FDIC said . "Most banks currently would have enough capital today to meet the proposed requirements," it said.
The proposal is "generally consistent with international capital standards issued by the Basel Committee on Banking Supervision Consistency," said Acting Comptroller of the Currency Michael J. Hsu. However, the proposal differs from the Basel standards to reflect specific characteristics of the U.S. markets, banking practices, law, and policy objectives, he said .
The proposal would require all banks with assets over $100B to apply supplementary leverage ratio and countercyclical capital buffer requirements. Previously, that applied to banks with more than $250B of assets and to banks under $250M in certain circumstances. The largest banks, those considered global systemically important, would still be subject to the strictest standards.
The proposal also uses standardized methods to measure risk as compared with the current requirement that allows banks to use internal models. "The new models-based methodology would better account for tail risk and would better reflect the risks of less liquid trading positions," the joint rulemaking overview said .
The proposal is open for comment until Nov. 30, 2023. Once finalized, the new rules would start to take effect in a phased process starting July 1, 2025, with full implementaton on July 1, 2028.
The rule proposal has been expected for months. Bank stocks were mixed after the news. The KBW Nasdaq Bank Index gains 0.2% in Thursday afternoon trading. Among GSIBs, JPMorgan Chase ( NYSE: JPM ) -0.1%, Citigroup ( NYSE: C ) rose 2.6%, Bank of America ( NYSE: BAC ) fell 0.3%, Wells Fargo ( NYSE: WFC ) -0.3%, Goldman Sachs ( NYSE: GS ) +0.1%, Morgan Stanley ( NYSE: MS ) +0.2%.
For large regional banks, U.S. Bancorp ( NYSE: USB ) +0.7%, PNC Financial ( NYSE: PNC ) -1.4%, Regions Financial ( NYSE: RF ) -0.1%, KeyCorp ( NYSE: KEY ) +1.5%, Huntington Bancshares ( NASDAQ: HBAN ), roughly flat, Axos Financial ( NYSE: AX ) -0.7%, Truist ( NYSE: TFC ) -1.6%,, and Fifth Third ( NASDAQ: FITB ) +1.0%.
New York Community Bank ( NYSE: NYCB ), which posted better-than-expected Q2 earnings on Thursday, jumped 6.7% .
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U.S. regulators propose increasing capital requirements for large U.S. banks