This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Regulators Double Basel III Capital Requirement (Update 1)

Updated with afternoon market action and further detail on the enhanced capital requirements.

NEW YORK ( TheStreet) -- One week after federal regulators issued their "final" rules for implementing Basel III capital requirements, the regulators on Tuesday proposed doubling a key requirement for the nation's largest banks.

The Office of the Comptroller of the Currency on Tuesday announced that along with the Federal Reserve and the Federal Deposit Insurance Corporation, it had proposed "to add a 6 percent supplementary leverage ratio requirement to the 'well-capitalized' capital category to their respective prompt corrective action regulations for any covered insured depository institution."

The 6% minimum Basel III supplementary Tier 1 leverage ratio requirement will apply to banks with total assets of more than $700 billion. The largest bank holding companies will be required to maintain Basel III Tier 1 leverage ratios of at least 5%.

The regulators' supplementary leverage ratio requirement is completely separate from the final Basel III Capital Rules published last week by the Fed, the OCC and the FDIC. Under those rules, the Basel III Tier 1 leverage requirement for all banks is 4%. But "advanced approaches" banks are required to do a separate Tier 1 leverage capital ratio calculation, incorporating off-balance-sheet items. The minimum requirement for this supplementary Tier 1 leverage ratio is just 3% under the final rules announced last week.

But the Federal Reserve Governor Daniel Tarullo said in a statement that "despite its innovativeness in taking account of off-balance-sheet assets, the Basel III leverage ratio seems to have been set too low to be an effective counterpart to the combination of risk-weighted capital measures that have been agreed internationally." He also said "we are very close to completion of a notice of proposed rulemaking that will establish a leverage ratio threshold for these firms above the Basel III required minimum."

It sure didn't take long for the regulators to propose the higher capital requirement, but it is a confusing event for investors, who would like to see the capital requirements settled at some point.

"The regulators want to make sure that the large-cap banks don't get too comfortable with where their capital requirements are," says Guggenheim Securities analyst Marty Mosby. "This leaves some uncertainty out there to encourage them to be more conservative in their deployment of capital."

The latest move on capital requirements may also soothe some members of Congress, who have been calling for a simpler approach to banks' capital requirements.
1 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
BAC $17.48 0.00%
C $54.21 0.00%
JPM $67.17 0.00%
MS $33.78 0.00%
WFC $55.39 0.00%


Chart of I:DJI
DOW 17,798.49 -14.90 -0.08%
S&P 500 2,090.11 +1.24 0.06%
NASDAQ 5,127.5250 +11.3820 0.22%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs