US Fed Vice Chair: "Significant Easing of Capital Regulations for Large Banks"

Proposal to Reduce Large Banks' Capital Requirement from 19% to 9%

U.S. financial authorities are easing the capital strengthening requirements for large banks to about half of the initial proposed level.

On the 10th (local time), Michael Barr, Vice Chair for Supervision at the U.S. Federal Reserve (Fed), announced at an event held at the Brookings Institution in Washington D.C. that the capital requirements for large banks designated as "Global Systemically Important Banks" (G-SIBs) will be raised by 9% compared to previous levels.

Earlier, the Fed and others had proposed increasing the capital requirements for large banks by 19% in July of last year and sought public comments. This reflected the growing sentiment that bank soundness regulations needed to be strengthened following the collapse of Silicon Valley Bank (SVB) in March of the same year. At that time, SVB had heavily invested in U.S. Treasury securities but suffered massive losses due to price declines caused by high interest rates, which led to a bank run and ultimately its closure.

In response to these regulatory moves, major U.S. banks launched extensive lobbying efforts targeting the political sphere. From the banks' perspective, if they are required to hold significantly more capital to meet the strengthened soundness regulations, the capital available for loans and other uses would decrease, reducing their profit-generating capacity. Ultimately, the Fed and others accepted the banks' opposition and lowered the regulatory requirements substantially from the original proposal.

Vice Chair Barr stated, "There are both costs and benefits to increasing capital requirements," adding, "This revision aims to achieve a better balance between costs and benefits."