FDIC Proposes Minimum Capital Standards for Banks

By Alan Zibel

U.S. regulators proposed new capital standards for financial institutions Tuesday, implementing a requirement of the Dodd-Frank financial overhaul.  The standards mandate that the nation’s largest banks will be subject to the same minimum standards for their capital cushions as smaller institutions, Federal Deposit Insurance Corp. Chairman Sheila Bair said. The standards apply to banks, bank holding companies and any other financial institutions supervised by the Federal Reserve. The FDIC also voted to gradually boost the amount of reserves that insured banks must hold. The so-called designated reserve ratio would be targeted to rise to 2% over the next 17 years, FDIC officials said. The Dodd-Frank law sets a minimum of 1.35% by fall 2020. Banks will be required to evaluate the size of their capital cushions under the formula used by small community banks and under a different one used by larger institutions, FDIC officials said. They will be required to use the more stringent of the two standards. Large banks have already raised enough capital to meet these standards, said Karen Shaw Petrou, managing partner of Federal Financial Analytics, a consulting firm.