New Regulatory Rules Could Increase Bank Capital Requirements by 20%

Last month, Federal Reserve vice chair for supervision Michael Barr told Congress that new bank capital rules were being formulated. A new report from Reuters cites a source who suggests that those rules could be proposed by the end of June. Those changes may impose capital requirement increases 20% higher than the current standards.

Meeting new international bank capital requirements

The Fed’s proposed rule changes are reportedly designed to align U.S. bank capital requirements with standards established by the Basel Committee on Banking Supervision (BCCBS). That committee is an international group of banking supervisors. Since 1974, it has worked to create international standards for regulating the banking sector.

The relevant Basel Committee rules are scheduled to be implemented in January 2025. In 2021, Barr’s predecessor, Randal Quarles had warned that the largest U.S. banks would see a 20% capital requirement hike if the anticipated global standards were to be fully implemented in this country.

According to the Wall Street Journal, the largest banks will likely see the biggest increase in capital requirements. The WSJ’s reporting noted that “megabanks” with huge trading operations will likely be subject to the largest requirement hikes. Banks that rely on income from investment banking are also expected to face big increases in their capital requirements.

In May testimony before the House, Barr told Congress that key rules would focus on large regional banks. At the time, he said that those rules would be largely directed toward firms with more than $100 billion in asset holdings. Additional changes to how those banks assess their capital levels were also discussed.

The proposed changes were in part prompted by regulators’ attempts to guard against a repeat of this year’s bank failures. Still, they were also inevitable if the U.S. intends to align its bank capital requirements with the scheduled international standards. In this case, it appears that regulators have decided to use the crisis as motivation to introduce the changes now.