Source(s): https://www.wsj.com/articles/big-banks-could-face-20-boost-to-capital-requirements-c68c1e1b

https://www.marketwatch.com/articles/goldman-citi-bank-stocks-capital-7f2ffd5e

U.S. regulators will potentially raise capital requirements for large banks by about 20%.

Regulators are preparing to increase a banks capital requirements, with the exact amount determined by each specific financial institution’s business activities, according to people familiar with the matter, according to the report.

The changes are expected to be proposed as soon as this month, with the largest banks expected to face the biggest increases in capital requirements.

The FDIC told Barron’s it was unable to offer comment on the report. Barron’s also reached out to the Board of Governors of the Federal Reserve System for confirmation and comment on the report.

Bank stocks were little changed in early trading Monday. JPMorgan Chase (ticker: JPM) and Wells Fargo (WFC) shares were up 0.2%, while Goldman Sachs (GS) and Bank of America (BAC) gained less than 0.1%. Citigroup (C) shares declined 0.3% while Morgan Stanley (MS) stock was down less than 0.1%.

These rules would be part of regulators’ efforts to place stronger regulations on the banking sector following the collapse of several smaller banks over the last few months.

Michael Barr, vice chair for supervision of the Board of Governors of the Federal Reserve System, has been pushing for tighter banking regulations since before the collapse of Silicon Valley Bank, and has continued to do so since.

“My review of Silicon Valley Bank’s (SVB) failure demonstrates that there are weaknesses in regulation and supervision that must be addressed, and I am committed to doing so,” Barr said in remarks to the Senate Committee on Banking, Housing, and Urban Affairs in May.

“We need to evaluate whether our capital requirements appropriately measure the ability of banks to absorb losses,” he added.

What could this mean?

• Reduced Lending: Banks with higher capital requirements may reduce their lending to maintain compliance, as they need to hold a greater amount of capital relative to their loans.
  • This could potentially restrict credit for businesses and individuals, possibly slowing economic growth.
• Higher Borrowing Costs: To compensate for holding more capital, banks might raise their lending rates, making borrowing more expensive for consumers and businesses.
• Quick Implementation Challenges: A sudden increase in capital requirements could be disruptive, forcing banks to quickly adjust their business models, strategies, and balance sheets to comply.
• Capital Availability: As we have seen with withdrawals from commercial banks, in this financial environment, banks may struggle to raise the necessary capital quickly.
• Small and Medium Bank Impact: While larger banks might have the resources to meet higher capital requirements, smaller banks could struggle, potentially leading to MORE consolidation in the banking industry...

TLDRS:

• US regulators are reportedly planning to raise capital requirements for large banks by around 20%, with the specific increase determined by each bank's business activities.
• The changes could be proposed as soon as this month, with the biggest banks expected to face the largest increases.
• These rates have been artificially suppressed for so long, can they survive this?

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