New bank capital requirements may move faster than the speed of regulation

By  Kyle Campbell

As federal regulators prepare to propose new capital standards this summer, a debate has emerged over their timing and potential impact on the real economy.Federal Reserve Chair Jerome Powell and Federal Deposit Insurance Corp. Chair Martin Gruenberg both confirmed last week that a proposed rule for the final implementation of the Basel III international regulatory framework is imminent and signaled that it will include greater capital requirements for the country’s largest banks….Karen Petrou, managing partner at Federal Financial Analytics, said the process of investors responding to regulatory changes and banks responding to their investors has become a well documented cycle, especially under the post-Dodd-Frank regulatory regime. “Investors are priced on a forward-looking basis, and they immediately run the numbers and price the new capital rules or new stress scenarios into their cost of equity,” Petrou said. “That immediately changes the bank’s strategic outlook. We know that because we see it year in, year out.”