(Investopedia) - Federal regulators are preparing to introduce new banking rules that would force big banks to hold up to 20% more capital, the Wall Street Journal reported Monday.
The new standards would differ by the type and size of bank, imposing the toughest requirements on “megabanks” focused on trading, such as Goldman Sachs(GS), the Journal reported. Large banks would face 20% increases to capital requirements on average.1
The stricter capital requirements would be intended to make banks better able to resist the kind of bank runs that drained the coffers of Silicon Valley Bank in March. Capital requirements force banks to hold some portion of their holdings in liquid, or easily sold, assets, so that they can absorb losses without the bank failing, and as a safeguard against bank runs and other risks.
Banking regulators have been exploring raising capital standards for years, even before the string of bank failures this spring forced the Federal Reserve, the Treasury, and the Federal Deposit Insurance Corporation to take drastic action to rescue depositors at banks that imploded and shore up the financial system to prevent a broader collapse.
In September 2022, the Federal Reserve and other federal agencies regulating banks said they were committed to following international standards and revising capital requirements for banks in order to “strengthen the resilience of the domestic banking system.”2
Banks have pushed back against the idea. The Financial Services Forum, a trade group representing big banks, said in a report earlier this month that capital requirements could backfire, raising borrowing costs for individuals and businesses, and driving people to use nonbank service providers for their financial needs.3
By Diccon Hyatt
