Bank regulators expected to propose higher capital requirements
Bank regulators expected to propose higher capital requirements
The Federal Reserve and other banking regulators are working on a proposal that would raise banks’ capital requirements. In other words, beef up the amount of assets banks have to keep on hand to help prevent insolvency. Nothing’s official yet, but the proposal could land later this year.
Regulators increased capital requirements in the wake of the 2008 financial crisis. And they were due to raise them again a few years ago. But then COVID hit.
“Ideally, regulators want to raise capital requirements when the economy is going well,” said Julie Hill, a professor at the University of Alabama.
She said now might not be a good time to do this, either. The economy is slowing down, and higher capital requirements could, in theory, restrict lending.
“But … you know, we’re still a few years out of actual implementation of the rules, and if you’re waiting for the Goldilocks time period, there might not ever be one,” Hill said.
Federal Reserve Chair Jay Powell has said the changes will focus most on the eight biggest banks. But they could also affect regional banks, like the three that failed earlier this year.
“It was very clear that those banks were not sufficiently capitalized,” explained Mayra Rodriguez Valladares, managing principal of MRV Associates.
Fed Chair Powell said that either way, community banks — the smallest category — will not be affected.
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