In a significant overhaul of banking regulations since the 2008 financial crisis, U.S. regulators have proposed that large banks, including the likes of JPMorgan Chase (NYSE:JPM), Bank of America (NYSE:BAC) and others, bolster their capital levels by an average of 16% to safeguard against potential future crises.
This move is expected to primarily impact the largest banks, many of which already possess sufficient capital to comply with these new rules. The capital serves as a buffer for banks to absorb potential future losses.
Financial stocks negatively reacted to the news with the Financial Select Sector SPDR Fund (NYSE:XLF) falling as much as 2.2% for the session, the worst daily performance since the end of May.
The regulators have proposed changes in how these banks assess risks and have expanded the scope of the new rules to institutions with as little as $100 billion in assets, meaning roughly 30 banks would be subject to the same calculations, according to Yahoo Finance.
This proposal is one of the most sweeping overhauls of how lenders are regulated since the 2008 financial crisis.
The impact of these changes will vary from bank to bank, depending on their operations. Officials from the regulatory agencies have stated that the eight largest banks, which have massive trading desks and coast-to-coast franchises, such as JPMorgan and Bank of America, will see capital requirements rise by 19% on average.
On the other hand, smaller banks with $100-$250 million in assets will see an average rise of 5%. This category includes a number of mid-sized regional banks, including KeyCorp (NYSE:KEY) and Huntington (NASDAQ:HBAN). The regulators argue that these changes are necessary to make lenders stronger, more resilient and better prepared for shocks like the crisis of this spring, when the failures of Silicon Valley Bank, Signature Bank, and First Republic triggered deposit withdrawals across the banking world.
The FDIC, the Office of the Comptroller of the Currency and the Federal Reserve will accept comments on the proposal until Nov. 30. Some parts of the proposal would be phased in over three years, starting in July 2025. All rules would be in place by July 2028.
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Edited by Arnab Nandy