FDIC and Federal Reserve officials say that the top eight banks must raise an estimated $95 billion to meet the 6% leverage ratio for insured commercial banks. That includes $38 billion to comply with the rule approved Tuesday and an estimated additional $57 billion to meet the requirements in the tougher leverage cap proposal. They said that this estimate is based on a variety of assumptions and that the banks appear to be well on their way to meeting the restrictions by 2018. In 2015 Banks must start disclosing how they calculate their leverage ratios.
The rules impact banks with more than $700 billion in assets. Regulatory observers predict that Bank of America (BAC) and Wells Fargo (WFC) would have the least difficulty meeting the new restrictions of the eight financial institutions that are impacted. The other institutions that must comply include Citigroup (C), Goldman Sachs (GS), JPMorgan Chase (JPM), Bank of New York Mellon (BK), State Street (STT) and Morgan Stanley (MS). Federal Reserve Governor Dan Tarullo noted that the proposal would modestly increase capital requirements though with "potentially different impacts on different firms." However, regulators did not disclose which banks will have the most trouble.
Proponents of a stronger U.S. cap argue that a tough leverage limit is another way to ensure big banks have sufficient capital cushions so that any future financial problems they might experience won't spread havoc throughout the global economy as many over-leveraged banks did during the 2008 financial crisis. Opponents, including lobby groups for the large banks, contend that the cap proposal under consideration in the U.S. would hamper bank lending, hurt the economy and put U.S. institutions at a global competitive disadvantage.
"This rule puts American financial institutions at a clear disadvantage against overseas competitors," said Tim Pawlenty, CEO of the Financial Services Roundtable, a lobby group for big banks. "It is disappointing this proposal wasn't further examined by economic experts and will likely result in tighter access to loans for businesses across the country."
However, Sheila Bair, former FDIC chairman and a big proponent of a tougher leverage cap, said the rule will help ensure that these institutions have a more robust cushion against losses and stand ready to lend even when markets change. "This in turn will protect markets, shareholders, and taxpayers," she added.