The 19 largest U.S. banks are at least $50 billion short of meeting new capital requirements under rules proposed by the Federal Reserve in accordance with the international Basel III bank-capital standards, which were intended to prevent the biggest global banks from causing another financial crisis.
Daniel Tarullo, the Fed governor who oversees bank regulation, said that while the capital requirements were “not a sufficient condition for a strong, resilient financial system, they [were] surely a necessary one,”
The Financial Times reports.
Moreover, though banking analysts had expected regulators to exempt some small lenders from the new rules, the Fed says the requirements outlined in the proposal draft should apply to all 7,307 U.S. banks.
According to the Fed, smaller U.S. lenders are about $10 billion short of the capital requirements.
The Fed finalized another regulation that would erase all references to credit ratings from bank capital rules and require banks to assess asset default risk using other measures.
This regulation means that banks will have to hold the same amount of capital against their holdings of sovereign debt issued by Germany as they would for Portugal, Spain and Ireland.
“It is relatively crude, but it is something that is being used for a relatively small portion of the portfolio,” said Stefan Walter, the former secretary-general of the Basel Committee on Banking Supervision, now a consultant at Ernst & Young.
The Economist reports that two smaller members of the euro area are quietly moving along with plans to recapitalize their own banking systems.
Portugal, which is already on life support, said it will inject 6.6 billion euros ($8.2 billion) into three of its largest banks. The Cypriot government said it, too, may need European help to raise 1.8 billion euros to recapitalize its second-largest bank.
© 2023 Newsmax Finance. All rights reserved.