A group of U.S. senators sent a letter to federal regulators last week, voicing their support for the new capital rules proposed by the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
The proposal calls for an increase in capital requirements by 19 percent for the U.S. Global Systemically Important Banks (G-SIBs), which consist of only eight banks. For nearly all other large banks with over $100 billion in assets, capital requirements will increase by 6 percent, the senators said.
In aggregate, the proposal will increase capital requirements by 16 percent for all banks with more than $100 billion in assets, impacting fewer than 50 banks that operate in the U.S.
“Capital is the linchpin of safety and soundness in our banking system. When a bank uses more capital to fund its investments and activities instead of debt, it is investors and shareholders, not workers and taxpayers, that take a hit if the bank faces challenges. Strong capital is the shock absorber on banks’ balance sheets during economic downturns. It allows banks to keep making loans exactly when businesses and households might need an economic lifeline the most,” wrote the senators. “Banks that conduct business without capital levels that reflect their risk and complexity present an outsized threat to our financial system and economy.”
The letter was signed by U.S. Sens. Sherrod Brown (D-OH), Jack Reed (D-RI), Elizabeth Warren (D-MA), Chris Van Hollen (D-MD), Catherine Cortez Masto (D-NV), Tina Smith (D-MN), John Fetterman (D-PA), Richard Blumenthal (D-CT), Brian Schatz (D-HI), Mazie Hirono (D-HI), Angus King (I-ME), and Tammy Duckworth (D-IL).
“The small group of banks that the proposed rule covers are among the largest and most complex financial institutions in the world. Some are behemoths with trillions of dollars in assets. The institutions that would be affected the most focus on sales and trading activity that primarily serve Wall Street and other large institutions. Especially for these large and complex institutions, capital is what keeps risky bets at banks from transforming into layoffs, depleted savings, and fewer wealth-building opportunities for workers, small businesses, and communities,” they added.