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Bank of America: Financial Winner

NEW YORK (TheStreet) -- Bank of America (BAC), was the winner among major U.S. financial names on Tuesday, with shares rising 2% to close at $13.52.

The broad indexes all advanced, after Alcoa (AA) late on Monday kicked off earnings season by reporting a smaller-than-expected second-quarter loss. Alcoa reported a net loss of 11 cents a share, but excluding restructuring costs, the aluminum producer earned 7 cents a share, beating by a penny the consensus estimate among analysts polled by Thomson Reuters.

More importantly, Alcoa reiterated its projections of a 7% increase in global aluminum demand during 2013. During the firm's conference call, CEO Klaus Kleinfeld said Alcoa's "projection of an 11% demand growth for aluminum in China is really confirmed."

Despite a proposal from federal regulators to double the minimum Basel III Tier 1 leverage capital requirement for the nation's largest banks, the KBW Bank Index (I:BKX) rose 0.5% to close at 64.58, hitting its highest close since October 2008.

The regulators proposal came just one week after the Federal Reserve, the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency issued their final rules for the implementation of Basel III capital standards.

Coverage of the Basel III implementation has focused on the Tier 1 common equity ratio, which is a risk-based capital ratio, meaning that a banks' assets are ranked to require additional capital to support risker loans and investments.

After numerous calls in Washington for simpler capital rules, the three regulators on Tuesday proposed that all U.S. banks with total assets of over $700 million maintain supplementary Tier 1 leverage ratios of at least 6%.

The Tier 1 leverage ratio is not risk-weighted. Under Basel III, banks are required to maintain 4% Tier 1 leverage ratios, but the largest banks also required to perform a separate supplementary leverage ratio calculation that factors-in off-balance-sheet items. The minimum supplementary Tier 1 leverage ratio for banks required to use this "advanced approach," is 3% under Basel III.

So one could argue that the new proposal is putting U.S. banks at a distinct disadvantage to foreign competitors.

Under the U.S. regulators' new proposal, the largest banks themselves will have to raise their core capital to 6% of average total assets, factoring in off-balance-sheet items, while their holding companies will have to maintain minimum supplementary Tier 1 leverage ratios of 5%.

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