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 The rules would limit banks' reliance on debt, part of efforts to
prevent another financial crisis. By 2018, banks must rely more on
funding sources such as shareholder equity, rather than borrowing
money.
Banks' insured subsidiaries face tougher limits and must boost
capital holdings by a total of about $95 billion, regulators said.
Officials said most firms are already on track to comply and could
meet the requirements by retaining earnings, or could shrink or
restructure some assets to reduce capital needs.
The final rules show regulators are unwilling to budge from an
increasingly tough stance on banking requirements, as they seek to
shore up banks after the 2007-2009 financial crisis.
"In my view, this final rule may be the most significant step we
have taken to reduce the systemic risk posed by these large, complex
banking organizations," said Martin Gruenberg, chairman of the
Federal Deposit Insurance Corp (FDIC).
The rule would apply to JPMorgan Chase, Citigroup, Bank of America,
Wells Fargo, Goldman Sachs, Morgan Stanley, Bank of New York Mellon
and State Street.
The Financial Services Roundtable, a trade group for large banks,
issued a statement blasting the limits, which are more stringent
than the international Basel III agreement.
"This rule puts American financial institutions at a clear
disadvantage against overseas competitors," said Tim Pawlenty, the
group's chief executive.
The FDIC, Federal Reserve and Office of the Comptroller of the
Currency approved the rules, implementing a portion of the Basel III
agreement known as the leverage ratio, which is calculated as a
percentage of a bank's total assets.
The rules require the eight biggest bank holding companies to
maintain top-tier capital equal to 5 percent of total assets.
Insured bank subsidiaries must meet a 6 percent ratio. That's higher
than the 3 percent ratio included in the Basel agreement.
Smaller U.S. banks would be held to the 3 percent ratio, regulators
said.
Scott Alvarez, the Fed's general counsel, told a congressional panel
on Tuesday that the 18 biggest banks have already boosted top-tier
capital levels by more than $500 billion since 2008. He did not
break down the total to show how much the top eight banks increased
their capital.
LEVERAGE LIMITS
The Basel III accord included both a leverage ratio and risk-based
capital requirements, which take into account the riskiness of
banks' assets.
Banks and other critics of leverage rules say they are draconian and
that risk-based capital requirements are more tailored to banks'
businesses.
While the rule may strengthen banks, "the potential for adverse
effects on market liquidity and the strength of the system going
forward could be real," Oliver Ireland, an attorney at Morrison &
Foerster in Washington, said in an email.
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U.S. regulators said risk-based capital requirements are easier to
game than leverage rules. They said the 3 percent Basel leverage
ratio would not have been high enough to sustain many banks through
the financial crisis.
"The leverage ratio serves as a critical backstop to the risk-based
capital requirements," said Fed Governor Daniel Tarullo, adding that
regulators could write extra capital requirements for banks that
rely on risky, short-term funding.
TOUGHER MODEL
The agencies also voted to issue a separate proposal to adjust the
way banks tally up their assets under the leverage rules. The
proposal, which would have to be finalized later, changed those
calculations to bring them more in line with the Basel rules.
Regulatory officials said the proposed changes would apply to banks
meeting the 3 percent Basel ratio as well as the eight biggest
firms.
Regulators said the changes would result in a "modest" increase in
the amount of capital banks would need to hold.
They said banks needed $22 billion in additional capital under the
old calculation model, compared to $68 billion with the Basel
method. The proposed changes count credit derivatives more and
traditional loans less than the original model did.
Chip MacDonald, a banking lawyer at Jones Day, said the difference
of $46 billion in capital between the two calculation systems was
"more than a tweak."
"Unless something particularly compelling can be demonstrated
through the comment process, we're going to end up with a much more
stringent leverage requirement on the largest banks," said Kevin
Petrasic, a partner in the global banking practice of law firm Paul
Hastings.
Banks have until June to comment on the proposed changes.
(Additional reporting by Douwe Miedema, Peter Rudegeair
and David Henry; editing by Karey Van Hall,
Leslie Adler, Bernadette Baum and David Gregorio)
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