U.S. will boost capital demands on banks above global standards

Capital standards at the biggest U.S. lenders would rise to 5% of assets for parent companies and 6% for their banking units under a plan proposed today by federal regulators.

The Office of the Comptroller of the Currency proposed a leverage ratio that’s 2 percentage points more than the 3% international minimum for holding companies, the agency said in a statement. Capital at U.S.-backed deposit and lending units must be twice the global standard at 6%, according to the OCC. The Federal Deposit Insurance Corp. is set to vote on the proposal later today.

The U.S. plan goes beyond rules approved in 2010 by the 27-nation Basel Committee on Banking Supervision to prevent a repeat of the 2008 crisis that almost destroyed the financial system. The changes would make lenders fund more assets with capital that can absorb losses instead of with borrowed money. Bankers say this could force asset sales and pinch profit.

“A 3% minimum supplementary leverage ratio would not have appreciably mitigated the growth in leverage among these organizations in the years preceding the recent crisis,” said FDIC Chairman Martin Gruenberg in a statement.

The changes would affect the eight U.S. institutions already tagged as globally important, according to the Federal Reserve. The Financial Stability Board, a group of international central bankers that coordinates financial rules, identified them as JPMorgan Chase & Co., Citigroup Inc., Wells Fargo & Co., Goldman Sachs Group Inc., Bank of America Corp., Morgan Stanley, State Street Corp. and Bank of New York Mellon Corp.

Capital Shortfall

Based on the largest banks’ September data, the holding companies fell short of the new leverage requirement by $63 billion, FDIC staff said in a meeting with reporters today. The insured lending units would need $89 billion more in capital.

Banks would have until Jan. 1, 2018 to comply, according to today’s statement. The proposal faces a 60-day public comment period and needs final approvals from the three agencies.

Regulators behind the proposal include the Fed, and firms that miss the target face limits on bonuses, dividends and stock buybacks. Bankers have resisted new measures, saying that lending might be impeded and that changes put in place after the financial crisis should be given time to work.

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