- by cnn
- 15 Aug 2024
US bank regulators advanced proposals on Thursday aimed at safeguarding the nation's largest banks in the wake of three regional bank failures earlier this year.
The new rules proposed by the Federal Reserve, Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation would increase the level of capital that banks with at least $100 billion in assets would be required to hold. The rules, collectively known as the Basel III endgame, wouldn't go into effect until 2028 if finalized after going through the standard notice-and-comment rulemaking process, which would end November 30.
US banks deemed systemically important globally - or, colloquially, "too big to fail" - would have to set aside an additional 19% of capital on average, according to the proposal. Banks with more than $250 billion in assets that aren't considered systemically important would see a 10% increase in the capital they're required to hold. Banks with asset levels between $100 billion and $250 billion, which included some mid-sized regional banks such as KeyCorp and Huntington Bank, would see a 5% increase.
Generally, this would mean banks would have to hold an additional two percentage points of capital, or an additional $2 of capital for every $100 of risk-weighted assets.
But smaller regional banks like PacWest, which is set to merge with Banc of California after reporting a $290 million decline in deposits last quarter, would be spared. In other words, these new rules would not have prevented the collapse of Silicon Valley Bank, Signature Bank or First Republic earlier this year, said Steven Kelly, senior research associate at Yale's program on financial stability.
Under the new rules, banks with $100 billion or more in assets won't be able to use their own models to determine the risk they've undertaken on loans and other activities. Their risk-level assessments have been the basis for informing how much capital they need to hold on top of baseline requirements.
The new rules would force banks to use a standardized model that is more conservative than their own in terms of access risk.
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