Most U.S. banks should be able to meet tougher capital adequacy standards set by U.S. regulators, says Fitch Ratings in a new report.
The rating agency notes that the new requirements — finalized earlier this week by the U.S. Federal Reserve Board — are positive for financial stability. And, it says that it believes that the banks it rates are generally “well positioned and capitalized to cope with the implementation of the Basel III rules.” Implementation will start in January 2014 for most banks and 2015 for smaller banks.
Indeed, Fitch says that most of the banks it rates will likely be able to achieve a full 7% Tier 1 common equity ratio ahead of the deadline for full implementation. The largest banks, which are designated as global systemically important financial institutions (GSIFIs) already exceed the required minimum, it says, adding that most of those are also meet the added buffers required of systemically important institutions.
And, it notes that the Fed is allowing “a softer capital approach” for smaller, simpler banks, with the full set of capital standards only applying to the largest, more complex banks. It also says that the changes to the U.S. leverage ratio are “modest”; and that the final rule kept the risk weights for residential mortgages consistent with existing practice, rather than the more punitive treatment originally proposed.
That said, Fitch also notes that there are “some challenging elements” facing banks under the new rules. The biggest issue, it suggests, will be the inclusion of unrealized gains and losses reported in the regulatory capital ratios. “Banks subject to this requirement will need to manage their balance sheets carefully to minimize fluctuations [in this income measure],” it says, adding that they will also “need to operate with an adequate cushion above minimum requirements.”