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The Deal: U.S. Banks Face Tougher Capital Mandate Than Global Rivals

Keefe, Bruyette & Woods analysts have said that among global SIFIs, or systemically important financial institutions, only Wells Fargo and Bank of America would have met a 5% Basel III Tier 1 leverage ratio as of the first quarter. Wells Fargo is the only bank to meet a leverage ratio of 6% or more, and would not hit a shortfall unless this was raised to 8%, according to KBW.

Other analysts said the new requirements were unlikely to meaningfully change the way banks conducted their businesses. Many banks have disposed of certain business lines, such as mortgages and structured products, given more punitive regulatory requirements and lower credit growth since the financial crisis.

The Independent Community Bankers of America voiced strong support for supplementary capital standards for the largest financial institutions. Community bank representatives had previously denounced the need for them to adhere to more stringent capital rules, given the larger role of Wall Street banks in the financial crisis and their systemic risk.

"The proposed rule introduced today supports ICBA's longtime call for policymakers to take a tiered approach to regulation that distinguishes low-risk and highly capitalized community banks on Main Street from the large and risky financial firms of Wall Street," said Camden Fine, the association's president and CEO.

FDIC Vice Chairman Thomas Hoenig supported the proposal but opposed his colleagues' decision to follow the Fed in implementing Basel III right now, which calls for institutions to set their own capital levels based on internal assessments of risks in their assets and calls for a minimum level of only 3%. Hoenig said they should have waited another couple of months in order to establish a single proposal on capital and leverage all at once.

Banks covered by the proposal would need to satisfy the 6% supplementary leverage ratio threshold to be considered well capitalized by federal regulators. Bank holding companies' 5% threshold would be made up of Basel's 3% minimum ratio plus a 2% buffer.

Although the move was foreshadowed in statements by various bank regulators, it was unclear whether banks and bank holding companies would have different leverage ratio standards, Skadden Arps' Sweet said. Setting different levels -- 5% for holding companies and 6% for their bank subsidiaries -- will have the practical effect of limiting big banks' ability to pay dividends to shareholders and bonuses to employees. It also will factor greatly in banks' capital planning and their ability to preparing for stress tests conducted by regulators to gauge their ability to withstand a financial downturn.
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