Capital Rule Is One Size Fits All

By Victoria McGrane, Matthias Rieker and Dan Fitzpatrick

The Federal Reserve shocked bankers Thursday by approving a proposal that would force even the smallest lenders to comply with the elaborate international bank-capital standards known as Basel III. The draft requirements would apply to all 7,307 U.S. banks, according to a proposal circulated by the Fed. Many bankers had expected regulators to exempt some small lenders from the new rules, which are aimed at shoring up the biggest global banks whose troubles fueled the financial crisis. The tougher capital rules backed by the Fed Thursday won’t take effect until 2019 but will come as an unwelcome surprise to small bankers struggling amid uneven economic growth, tough new rules limiting fees and technological and regulatory moves that have made larger banks more profitable. Setting the bank-size bar so low will mean “a real wake-up call” for small banks, said Karen Shaw Petrou, managing partner of consultant Federal Financial Analytics Inc., Washington. She said many smaller banks will be “forced to confront yet another challenge to an already fragile business model.”