U.S. banks may need to raise capital requirements by 20%: WSJ

By Barbara Kollmeyer and Steve Gelsi

U.S. regulators are planning fresh rules that will force bigger banks to lift their capital requirements by an average of 20% to shore up the system after this year's banking crisis, The Wall Street Journal reported on Monday, citing sources.

Any bank that relies on income from fees may also be swept up -- the first of what would be a series of tougher rules ahead for the industry.

Regulators want banks to measure their loss-absorbing risk buffers on a more transparent and globally-comparable basis.

The Federal Reserve is spearheading these efforts to boost requirements, alongside the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency.

All three federal regulators are expected to seek comment on the proposals, followed by a vote and a few years for implementation.

As part of the changes, some midsize banks will no longer be allowed to mark losses on securities held, which is a factor blamed on the collapse of Silicon Valley Bank.

Regulators have already been signaling they're contemplating new rules for banks. Federal Reserve Board Vice Chair for Supervision Michael Barr said bank supervisors failed to understand these heightened risks as Silicon Valley Bank grew.

Regulators have said they plan to apply new rules to a wider range of banks.

In another move that affects larger regional banks, institutions with at least $100 billion in assets may be required to comply with the new rules, a lower threshold than the $250 billion trigger now in place for tougher rules.

Bank-industry representatives pushing back against the potential changes said the higher capital requirements could raise borrowing costs and choke off services to consumers.

Another change in the works would be to widen operation risk definitions to include more fee-based activities.

The proposed operational-risk charges would inappropriately and disproportionally increase capital requirements for firms focused on fee-generating activities, Katie Collard, senior vice president and associate general counsel at the Bank Policy Institute told the WSJ.

Banks with large wealth management units such as Morgan Stanley (MS) and American Express (AXP) could be included in the fee income changes.

The latest regulatory moves mark another cloud over many bank stocks in 2023. The Financial Select SPDR ETF (XLF) is down 4.1% so far this year, while the KRE SPDR S&P Regional Banking ETF (KRE) is down about 28% and the KBW Nasdaq Bank Index is down by 20.4%.

Also Read:Fed's Powell says U.S. banking system is 'sound and resilient' after First Republic failure

-Barbara Kollmeyer

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06-05-23 0801ET

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