U.S. banking regulators are consulting on proposed changes to the capital rules for large Wall Street banks that would ease their capital constraints.
In a joint consultation, U.S. regulators — including the Federal Reserve Board, the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency — are proposing changes to the leverage requirements for U.S. banks considered global systemically important banks (G-SIBs).
According to the proposal, the revisions are intended to ensure that supplementary leverage ratio requirements act as a backstop to risk-based capital requirements, rather than as a regularly binding constraint. In turn, this would reduce regulatory disincentives for banks to engage in certain lower-risk, lower-return activities, supporting the functioning of the U.S. Treasury market.
The agencies said that, under the proposals, the aggregate tier-1 capital requirements for U.S. G-SIBs would be reduced by US$13 billion (1.4%), but that requirements for their depository subsidiaries would decline by an aggregate US$210 billion.
However, “almost all of this capital would need to be retained within the consolidated holding company, due to holding company capital requirements, and would not become available for distribution to shareholders,” the proposal noted.
In a research note, Fitch Ratings said the proposal is neutral to banks’ credit ratings, “as it would essentially bring the U.S. more in line with the international standards.”
The changes would also give the big banks “greater flexibility to absorb deposit inflows during periods of market stress or quantitative easing,” it said.
However, if U.S. regulators implement additional changes to ease capital standards, the combination of reforms “could be credit negative over time as the regulatory pendulum continues to swing under the current administration.”
The proposals are out for comment until Aug. 26.