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A weakening of the U.S. bank capital rules is a negative for the affected banks, says Moody’s Investors Service in a new report.

The rating agency said that the U.S. Federal Reserve Board has finalized changes to its capital rules for U.S. banks with more than US$100 billion in assets, which include a number of changes that weaken the original rules.

The Fed’s analysis of the final rule found that the common equity Tier 1 capital requirements could decline by a total of US$59 billion. The changes also impact the stress-testing process.

“The final rule is weaker than the original proposal for several reasons,” Moody’s said.

“Overall, these changes increase the flexibility banks have to payout capital more aggressively and will likely give bank management greater leeway to reduce the size of their management buffers and operate with capital ratios closer to the minimum levels required,” Moody’s said.

“The final rule also excludes the originally proposed stress leverage buffer requirement, which would not have been a binding constraint for most banks,” Moody’s noted. “Its elimination from the final rule removes this requirement as a potential backstop.”

These changes are credit negative for all U.S. banks covered by the rule, Moody’s concluded.