Big Banks Could Face Higher Capital Requirements

Big Banks Could Face Higher Capital Requirements

U.S. regulators are preparing to force large banks to shore up their overall capital requirements by an average of roughly 20% as early as this month, aimed at helping boost the industry’s resilience after a number of midsize bank failures, The Wall Street Journal reported.

• The Federal Reserve, Federal Deposit Insurance Corp., and the Office of the Comptroller of the Currency are expected to propose new rules that could apply to banks with $100 billion of assets or more. That’s lower than the current $250 billion asset threshold for the toughest rules, the Journal said.
• The proposal could be the first of several steps to tighten rules from the Trump administration’s less-stringent approach. The banking industry says stricter requirements aren’t needed and could force more bank mergers.
• Fed Vice Chair for Supervision Michael Barr told Congress last month that capital requirements should be higher to increase resilience because shocks to the system are hard to predict, “as has happened with these recent bank failures.”
• The FDIC and the Federal Reserve declined Barron’s requests to comment. Critics say increasing bank-capital requirements could raise costs for consumers and prompt banks to stop offering certain services.

What’s Next: The results of the Fed’s annual stress tests of the 23 biggest banks are due out later this month. In the 2023 stress test hypothetical scenario, U.S. unemployment rises to a peak of 10%, accompanied by severe market volatility, widening corporate bond spreads, and collapsing asset prices.

—Janet H. Cho and Angela Palumbo from barrons