Top bank regulators in the US have announced the most comprehensive revision of capital rules in recent years to strengthen their financial buffers so that big banks can absorb unexpected losses. Regulators plan to apply a capital adequacy ratio of 19 percent to the 8 largest banks.
Measures released Thursday by the Fed, the Federal Deposit Insurance Corporation (FDIC) and the Office of Currency Control are expected to increase by 16 percent the amount of capital required by banks with at least $100 billion in assets.
According to officials, the country’s eight largest banks face an increase of about 19 percent, while a 5 percent increase is projected for banks with assets between $100 billion and $250 billion.
Your plan is supported by Regions Financial Corp., KeyCorp, and Huntington Bancshare Inc. It is assessed that this could result in medium-sized firms such as
The long-awaited US reforms relate to Basel III, an international overhaul that began more than a decade ago in response to the 2008 financial crisis. The issue has become even more important this year, with Silicon Valley Bank and Signature Bank going bankrupt in March and First Republic Bank in May.
The FDIC and the Fed will hold two separate open meetings on Thursday to discuss the plans. Once the proposals are formally submitted, they will receive public comments from regulators and vote again to finalize the plans.
Standard Approach
Under the proposal, midsize banks will now have to include unrealized gains and losses on certain securities in their capital ratios.Experts said that banks’ allocating more capital could hurt competition and slow economic growth.
Along with the plan, regulators are also proposing changes in the way banks calculate risk-weighted assets, a key component of certain capital ratios.
Institutions want banks to use two different methodologies when calculating this figure: the current US standard methodology, which takes into account the overall credit and market risk of an activity, and a newly expanded methodology that will also consider the operational risk of the operation in addition to any credit valuations.
When a bank ultimately wants to calculate capital ratios, it will have to use whatever methodology resulted in higher risk-weighted assets.
Industry Feedback
Executives at some of the largest firms said increased requirements could slow the U.S. economy and make it weaker to non-bank lenders and European competitors. Regulators say stronger powers will make the financial system more resilient to stressors.
The proposal includes adjustments to a surcharge for eight systemically important US banks. Other changes include stricter requirements for residential mortgage portfolios of large banks compared to international standards.