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U.S. Bank Regulators Go Bigger Than Basel, Seek Tougher Capital Rules

Regulators want the biggest lenders to have more capital
U.S. Bank Regulators Go Bigger Than Basel, Seek Tougher Capital Rules
Photograph by Byron Company/MCNY

U.S. regulators are pushing tougher standards for bank safety than their international counterparts, and more rules are coming. On July 9 they proposed that bank holding companies have capital equal to 5 percent of their assets, and that their federally insured banking units hold capital equal to 6 percent of assets. Capital—defined by regulators as the money the company has raised by selling stock, plus retained earnings—serves as a buffer against losses during times of stress.

The plan goes beyond rules approved in 2010 by the 27-nation Basel Committee on Banking Supervision to prevent a replay of the 2008 financial crisis. The Basel rules call for a capital level, or leverage ratio, of 3 percent of assets. That wouldn’t have done much to slow the growth of leverage during the years leading up to the 2008 crisis, Federal Deposit Insurance Corp. Chairman Martin Gruenberg said when introducing the proposal. The capital standards would apply to eight U.S. institutions identified as being of global systemic importance: JPMorgan Chase, Wells Fargo, Goldman Sachs, Bank of America, Citigroup, Morgan Stanley, State Street, and Bank of New York Mellon. Based on the largest banks’ latest data, the holding companies fell short of the new capital requirement by $63 billion, and their insured lending units would need $89 billion, according to regulators.