Top US bank watchdog outlines tougher rules for big lenders

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A top US banking regulator has announced tighter capital rules for a wide range of lenders in a bid to shore up a financial system troubled by the failure of several regional banks earlier this year.

Michael Barr, vice chairman for supervision at the Federal Reserve, unveiled regulatory changes on Monday for institutions with $100 billion or more in assets, proposing tighter capital standards that would require banks to store additional capital that could be used to cover any losses. Can be done to absorb.

“The comprehensive set of proposals that I have described here today will significantly strengthen our financial system and prepare it for emerging and unexpected risks, such as the one in the banking system earlier this year,” he said at an event organized by revealed itself.” Bipartisan Policy Center in Washington DC.

The proposals come months after three of the four biggest failures of federally insured banks in US history — Silicon Valley Bank, Signature Bank and First Republic — have stoked fears about the regional lenders’ resilience. All three failed banks had more than $100 billion in assets, but were below the current $250 billion threshold for the more stringent requirements.

Importantly, the new rules will also require medium-sized banks to report the impact of losses on their assets on their capital levels, which, Barr said, “will improve the transparency of regulatory capital ratios, as it better reflect the actual loss-absorbing capacity of banking organizations”. SVB was exempt from that rule because of its size, and when it sold assets, the sudden losses spooked investors and depositors.

Barr said the changes would increase capital requirements across the US banking industry, but would “primarily increase capital requirements for the largest, most complex banks”.

The proposed new banking rules would come in two forms: the eventual implementation of new international standards – the so-called Basel III endgame reforms – and the overall review of capital rules that Barr announced last year.

Most jurisdictions that have already implemented Basel reforms have implemented the rules on all their banks. However, the US, with its more fragmented banking system and more than 4,000 banks, is different and has adopted a size-based stratification approach.

Bank shares were little changed on Monday, indicating that many of the proposals were anticipated and would be phased in over time.

Barr said the proposed rules would require banks to hold an additional $2 of capital for every $100 of risk-weighted assets. He argued that most banks already had sufficient capital to meet these new regulations and speculated that those banks that did not make sufficient profits could comply within two years by paying dividends.

In response to Barr’s speech, the Financial Services Forum, a lobby group for the largest banks including JPMorgan Chase, Bank of America and Goldman Sachs, said that further capital requirements would make borrowing costs higher and cost consumers and businesses less money. There will be less loans for “We call on regulators to consider these implications carefully,” said Kevin Frommer, chief executive of the FSF.

Greg Baer, ​​president of the Bank Policy Institute, a lobby group, said Barr’s proposals failed to consider “the cost to economic growth, credit availability, market liquidity or the economy as a whole.”

In a moderated discussion that followed his remarks, Barr rebutted the criticism. “Capital is about building resilience in the financial system. Capital is what enables banks to make loans to the economy.

Among other changes, Barr proposed a more “transparent and consistent” approach to assessing banks’ individual credit and market risks, ending the practice of institutions putting forward their own individual assessments, which In he said that they often “underestimate” the potential problems. He also proposed broadening the scope of the Fed’s annual stress tests to evaluate a wider range of risks.

Barr also said he planned changes around the capital surcharge currently applied to so-called global systemically important banks (G-SIBs).

Specifically, Barr said he would design rules to reduce incentives for banks to temporarily alter balance sheets to obtain lower G-Sib surcharges, as well as reduce “cliff effects”. Will also reduce increments requiring additional capital.

Barr opposed making any adjustments to how banks calculate their so-called complementary leverage ratio, which requires large banks to have capital equivalent to at least 3 percent of their assets, or the largest systemically important institutions. requires 5 percent. He rejected lobbying from lenders who wanted Treasuries and cash reserves discounted and cited liquidity concerns in the US government bond markets.