This Day On The Street
Continue to site right-arrow
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
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Regulators Double Basel III Capital Requirement (Update 1)

Stocks in this article: BAC C JPM WFC MS GS

Most of the media coverage of the implementation of Basel III has focused on the Tier 1 common equity ratio, which is a risk-based capital ratio.

Risk-based means that a bank's assets are weighted by perceived risk. For example, cash has a zero risk weighting. Loans have risk-weightings based on loan-to-value ratios and whether or not the payments are current. Bonds have risk-weightings based in part on ratings.

The minimum Tier 1 common equity ratio for large banks is 7% under Basel III, with additional requirements for "globally systemically important financial institutions," or GSIFIs. Based on determinations by the Basel Committee, the additional capital surcharges for Citigroup (C) and JPMorgan Chase (JPM) are 2.5%, so each of these banks has a fully phased-in minimum Basel III Tier 1 common equity ratio requirement of 9.5%.

For Bank of America (BAC) and Wells Fargo (WFC), the surcharge is 1%, for fully phased in Basel III Tier 1 common equity ratio requirements of 8.0% for each company.

Citigroup's estimated Basel III Tier 1 common equity ratio was 9.3% as of March 31, while JPMorgan's estimated ratio was 8.9%, putting both companies close to compliance, years in advance of January 2019, when the rules will be fully implemented.

Bank of America and Wells Fargo were already in compliance with their Basel III Tier 1 common equity requirements, with respective estimated March 31 ratios of 9.42% and 8.39%.

The Leverage Ratio Is Different

The Tier 1 leverage ratio is not risk-weighted, and analysts differ on how much of an effect the FDIC's move will have on the big banks.

According to KBW analyst Brian Kleinhanzl, among eight of the nation's largest banks, only Wells Fargo had an estimated supplementary Basel III Tier 1 leverage ratio above 6% as of March 31. Of course, at that time, it wasn't yet known that the large holding companies would be required to maintain Tier 1 leverage ratios of 5%, with their bank subsidiaries facing the 6% requirement.

According to Kleinhanzl, Wells Fargo had $23.4 billion in excess capital, based on his firm's estimates. Here are the shortfalls for full compliance with supplementary Basel III Tier 1 leverage requirements, calculated by KBW:

  • Bank of America would need an additional $25.3 billion in Tier 1 capital to achieve full compliance with the FDIC's proposed 6% Basel III supplementary Tier 1 leverage requirement.
  • Citigroup would need an additional $38.9 billion in Tier 1 capital.
  • JPMorgan Chase would need $48.9 billion in additional Tier 1 capital.
  • Bank of New York Mellon (BK) would need $8.0 billion in additional Tier 1 capital.
  • Goldman Sachs (GS) would need an additional $18.8 billion.
  • Morgan Stanley (MS) would need an additional $25.4 billion.
  • State Street (STT) would need $3.1 billion in additional Tier 1 capital to comply with the FDIC's proposal, according to KBW.

While State Street is not at this point considered an "advanced approach" bank, KBW included the firm in a note to clients on June 21, saying the company could eventually qualify for the supplementary Tier 1 leverage ratio requirement.

2 of 3

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

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
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

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

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, 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
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 18,053.71 +23.50 0.13%
S&P 500 2,088.77 +6.89 0.33%
NASDAQ 4,806.8590 +33.3870 0.70%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs