Published July 09, 2013
U.S. regulators on Tuesday are set to propose a plan that would force the country's largest banks to hold twice as much equity capital than required by the global Basel III bank capital standards.
The eight largest banks would be subject to a leverage ratio of 6 percent, the three regulators said, representing a hard cap on how much a bank can borrow to fund its business.
Moreover, the eight biggest bank holding companies would be subject to a 5 percent leverage ratio, the Federal Deposit Insurance Corp, the Office of the Comptroller of the Currency and the U.S. Federal Reserve said.
Forcing banks to draw more of their funding from equity capital and rely less on debt has been a key pillar of regulators' efforts to make banks sturdier after the 2007-2009 financial crisis.
Many reform advocates favor a leverage ratio because it measures bank borrowing without allowing banks to weigh the riskiness of their assets with their own mathematical models, a system that critics say can easily be gamed.
The global Basel III capital accord, which Europe, Asia and the United States are simultaneously introducing, requires a minimum 3% leverage ratio.
"A three percent minimum supplementary leverage ratio would not have appreciably mitigated the growth in leverage ... in the years preceding the recent crisis," FDIC head Martin Gruenberg said in prepared remarks.
The OCC also adopted a final rule to introduce the Basel III capital accord in the United States. The Fed did so last week, and the FDIC is expected to do so in a meeting later on Tuesday.
The eight banks subject to the rules are JP Morgan Chase & Co (JPM), Citigroup Inc (C), Bank of America Corp (BAC), Wells Fargo & Co (WFC), Goldman Sachs Group Inc (GS), Morgan Stanley (MS), Bank of New York Mellon Corp (BK) and State Street Corp (STT).