Bank supervisors in the United States have put forward a proposal that could see capital requirements for leading US banks shoot up by 16%. The move comes as the regulators seek to increase their oversight of the banking industry, particularly in the aftermath of the recent US banking crisis.

A Multi-Agency Campaign

On Thursday, the Department of Treasury’s Office of the Comptroller of the Currency, the Federal Reserve System and the Federal Deposit Insurance Corporation released a document 1,089-pages-long detailing its suggestions for amendments to the regulator's capital rule for large banking organizations in the country.

Citing agency officials, Bloomberg and Reuters reported that the proposed requirements will lead to an even bigger increase of 19% for eight of the largest banks in the United States. Furthermore, for banks with $250 billion in assets, the required capital could jump to an average of 10%, with only 5% capital required for those with assets between $100 billion and $250 billion.

Some of the largest banks in the US include JP Morgan Chase, Bank of America, Wells Fargo, Citigroup and US Bank.

In the document, the regulators proposed replacing the current requirements that permit banks to use their internal models to calculate credit and operation risks with certain ‘standardized approaches’. They also want to substitute the current rules for market risk and credit valuation adjustment with these so-called ‘revised approaches’.

In general, bank supervisors noted that these changes will be mainly consistent with Basel III, which is the third set of Basel Accords or international banking rules developed by the Basel Committee on Banking Supervision after the 2007/2008 financial crisis.

“The revisions set forth in the proposal would improve the calculation of risk-based capital requirements to better reflect the risks of these banking organizations’ exposures, reduce the complexity of the framework, enhance the consistency of requirements across these banking organizations, and facilitate more effective supervisory and market assessments of capital adequacy,” the agencies explained.

Industry Kicks

However, reacting to the development, industry stakeholders criticized the proposal, noting that it could force organizations out of the industry into non-banking sectors. Some also argued that it could put US banks at a disadvantage, especially compared to their European counterparts.

According to Reuters, Kenneth Bentsen, the Chief Executive Officer of the Securities Industry and Financial Markets Association, described the proposal as ‘misguided’. Bentsen contended that the regulators lacked justification for such a move considering how resilient the US financial market has been following the 2007/2008 global financial crisis.

However, the regulators argued otherwise, with officials saying that most banks are already well-capitalized to meet the rule. They pointed out that banks with smaller financial resources can meet the requirements within at most two years of retained earnings, Reuters reported.

“[We] assessed the likely effect of the proposal on economic activity and resilience, and expect that the benefits of strengthening capital requirements for large banking organizations outweigh the costs,” the agencies noted in the document.

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