US Regulators Vote to Beef Up Capital Requirements For Big Banks

U.S. banking regulators are one step closer to enforcing higher capital requirements on large banks after they issued proposed rules on Thursday that would be among the toughest since the end of the financial crisis more than a decade ago.

Regulators, including the Federal Deposit Insurance Corp., the Comptroller of the Currency and the Federal Reserve all said the new rules would apply to banks with $100 billion in assets or more. The stiffer capital requirements, which come after a banking crisis in March claimed Silicon Valley Bank and set off fears of broader contagion, wouldn’t fully go into effect until the beginning of 2028. There will be a public comment period until the end of November, with the final rule scheduled to be issued next year. 

Michael Barr, the Fed’s vice chair for supervision, said at a meeting of the central bank on Thursday that the new rules would create a safer banking system by standardizing how banks assess risk, and won’t create a shock for lending markets including mortgages. Most big banks already have enough capital to meet the new requirements, he added.

“With respect to lending activities, staff analysis suggests the capital impact on these activities would be modest, and the greater resilience provided by the rule would contribute positively to economic growth,” Barr said. 

The Mortgage Bankers Association, a trade group and lobby representing the banking industry, issued a statement Thursday urging the agencies to vote against issuing the proposed rules "pending more detailed analysis of the combined effects of the rule on the economy, and on housing and real estate finance markets specifically.” 

The new requirement could put large banks on the hook for tens of billions of dollars in extra capital they must set aside to ensure their stability. FDIC Chairman Martin C. Gruenberg said Thursday that big banks could see their capital requirement increase by 16% and smaller insured depository institutions by 9%.

The proposed rule is sometimes referred to as the “Basel endgame,” as it is seen as the final iteration of the Basel III standard created in Basel, Switzerland, following the 2008 subprime mortgage meltdown in the U.S. that claimed Lehman Brothers and Bear Stearns, prompted a roughly $700 billion bailout of financial institutions by the federal government and led to a global crisis.

For a video of the Fed’s Thursday meeting on the Basel III regulations, click here.