Regulators Reveal Comprehensive Overhaul of Bank Capital Rules
On Thursday, US bank regulators put forth a comprehensive reform plan, aiming to significantly increase the capital banks need to hold as a buffer against potential risks. If the proposal is fully adopted, it would see an aggregate increase in capital requirements of 16% for large banks compared to the current levels, with the most significant impact being on the largest and most complex institutions, according to regulators.
Banking Industry Leaders React to Proposal
Kevin Fromer, CEO of the Financial Services Forum, expressed strong opposition to the proposal, arguing that there is "no justification for significant increases in capital at the largest US banks." He warned about the potentially damaging economic impact, the competitive edge it could provide to large European banks, and a possible shift of banking services into the non-bank sector.
Mixed Opinions on the Impact and Timing of the New Proposal
On the other hand, Rick Meckler, a partner at Cherry Lane Investments, suggested caution in reacting to the proposal, stating it would be a lengthy process involving negotiation and politics that could stretch between two to four years.
Mayra Rodriguez Valladares, managing principal of MRV Associates, voiced concerns that the proposal does not sufficiently address operational, market, and credit risks, and allows big banks to use complex models to understate their risk levels, especially in operational risks.
Concerns About the Increased Capital Requirements and Their Impact
Kenneth Bentsen, CEO of the Securities Industry and Financial Markets Association, criticized regulators for failing to provide adequate justification for the increased capital requirements. He argued that such a move would be misguided, particularly considering the resilience demonstrated by US markets since the Global Financial Crisis.
Ana Arsov, managing director of Financial Institutions at Moody's Investors Service, sees the proposed increase as credit positive in the long run. However, she acknowledges that these banks may face near-term costs and will require time to transition to higher capital levels.
Concerns Over Homeownership and Small Business Impact
Bank of America CEO Brian Moynihan believes the process should ensure a "level playing field" and be implemented carefully to avoid damaging US competitiveness.
Andy Duane, an attorney at Polunsky Beitel Green, warned that increased capital requirements might cause regional banks to retreat from mortgage lending, exacerbating the already challenging situation for potential homeowners facing high-interest rates and steep home prices.
Call for Robust Economic Analysis of Proposal
The Bank Policy Institute's CEO, Greg Baer, believes the proposal would harm consumers and small businesses by unnecessarily increasing the required capital for banks and encouraging financial activity to move into unregulated areas. He criticized the proposal for being a "bad deal" cut in Basel without public transparency or Congressional input and called for a thorough economic analysis of the proposal's impact.