Major Overhaul of Capital Rules for Banks Holding $100 Billion or More in Assets Revealed by Regulators

On Thursday, U.S. regulators revealed an extensive set of proposed alterations to banks’ capital requirements. These changes aim to address evolving international standards and the recent regional banking crisis effectively. The proposed revisions, outlined in a notice from the Federal Reserve, Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corp, are intended to enhance the precision and consistency of banking regulations. They will specifically target risky activities, such as lending, trading, valuing derivatives, and operational risk. Anticipated by the banking industry for some time, these rules seek to tighten regulation in response to two significant crises: the 2008 financial meltdown and the more recent upheaval in regional lenders in March. The proposed changes incorporate elements of Basel III, the international banking regulations established after the 2008 crisis, which have taken years to implement fully.

The main thrust of the changes is to increase the capital banks are required to hold to safeguard against potential losses, with the precise amount varying depending on each firm’s risk profile. Although these heightened requirements apply to all banks with assets exceeding $100 billion, they are expected to have the most impact on the largest and most complex financial institutions. According to a fact sheet, the proposed improvements in risk sensitivity and consistency are estimated to result in an overall 16% increase in standard equity tier 1 capital requirements. This measure is used to assess an institution’s financial strength and its ability to weather recessions or trading crises. Moreover, the changes would mandate banks to replace internal models for lending and operational risk with standardized requirements for all banks holding at least $100 billion in assets. Additionally, banks would be required to use two methods to calculate the riskiness of their activities and adhere to the higher of the two for capital purposes.