Criticism has Already Started as Regulators Set Out New Capital Requirements

New proposals to raise bank capital requirements have already drawn criticism from industry bodies even as regulators open their proposals for public commentary.

The new requirements — brought about as part of the implementation of Basel III reforms — are aimed at fortifying the strength and resilience of the US banking system and will require banks with more than $100 billion in assets to hold more capital to protect against the impact of economic downturns.

However, the proposal has already drawn criticism from industry leaders. Rob Nichol, president and CEO of the American Bankers Association (ABA), expressed apprehensions about the suggested reforms, particularly concerning the negative economic consequences they may entail.

Other groups, including the Bank Policy Institute, have claimed that the proposals as they stand would require some the largest banks to hold up to 24% more capital than they do currently.

In his statement, the ABA’s Nichol highlighted concerns about forcing already robust banks to hold more capital than necessary to maintain safety and soundness. He argued that the proposed changes would require banks operating in the US to adhere to even higher capital levels without any apparent justification. Nichol further contended that the proposal would effectively undo regulatory tailoring previously approved by Congress in a bipartisan manner.

Nichol reiterated that the US banking system was already well capitalized, a conclusion reached by regulators themselves and evident in recent stress tests. He emphasized that American banks have navigated economic challenges admirably, while simultaneously supporting their customers and communities.

“Dissenting voices” at the Federal Deposit Insurance Corporation and Federal Reserve also expressed similar concerns about the potential repercussions of the proposal, Nichol stated.

Fed governor Michelle Bowman said in a statement that it was “important to consider possible costs and unintended consequences”, while governor Christopher Waller emphasized that he supported the public commentary process but “that does not mean I support or oppose applying such requirements”.

The call for public comment on the proposed reforms remains open until November 30, 2023 — more than the 120 days normally given for feedback on regulatory proposals, and something the ABA and others had previously asked for.