Bank Regulators Set Vote on Big Jump in Capital Requirements
By Ryan Tracy, Stephanie Armour
U.S. regulators are set to impose another curb on risk taking at the largest U.S. banks Tuesday as part of a continuing push to force big banks to gird themselves against periods of market stress. Under the new “leverage ratio,” scheduled for a vote by the Federal Deposit Insurance Corp. and the Federal Reserve, the eight biggest U.S. firms would have to double the amount of capital they hold as protection against every loan, investment, building, security and other asset on their books-not just the risky ones.
The rule could force big banks to add tens of billions of dollars in new capital, though many have been bulking up since regulators first floated a leverage ratio in July. The biggest companies would be required to maintain loss-absorbing capital worth at least 5% of their assets, and their FDIC-insured bank subsidiaries would have to keep a minimum leverage ratio of 6%. The amounts, which are line with what banks expected from regulators, compare with the 3% set out by international accord. For the largest banks, satisfying the new requirement will likely be manageable in the near term, but analysts warned it could constrain future growth since it would limit each bank’s ability to increase its asset base, forcing it to either raise more cash from investors or shed assets elsewhere if it begins to bump up against the ratio’s limits. “We’re just accepting a public policy of really stringently regulating banks, especially the biggest ones, and then letting the chips fall where they may,” said Karen Shaw Petrou, managing partner of the advisory firm Federal Financial Analytics Inc. When it was proposed last year, the leverage ratio sent a shock wave through the banking industry, which hadn’t expected U.S. regulators to take such an aggressive tack.