Regulators propose strict capital rules for U.S. banks

Capitalbuffers at the eight biggest U.S. banks would rise to higher than theinternational standard under a proposal put forward by U.S. regulators Tuesday.

Themandatory ratio of equity to loans and other assetsat U.S. banking units would be twice the world standard atsix per cent. The larger bank holding companies, which act as the parent companies of the subsidiaries involved in lending and holding deposits, would be required to put asidefive per cent of assets.

That is two percentage points above the international minimum setfor bank holding companies under the Basel IIIinternational accord, which encouraged banks to build their capital buffers to three per cent of assets and redefined what is considered Tier 1 capital.

Former Bank of Canada governor Mark Carney,chair of the Basel-based Financial Stability Board, had championed theBasel IIImeasures.

Regulators have been attempting to strengthen banks since the2008 financial crisis by forcing them to boost capital and rely less on borrowed money.

The Federal Reserve, the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency put forward the proposed new rules, which would take effect in 2018 at the eight biggest U.S. banks. A 90-day period for comments began Tuesday.

Some members of the U.S. Congress have pressed for stricter regulation of U.S. banks, and regulators seem to have heeded their calls in today's proposal.

"A three per cent minimum supplementary leverage ratio would not have appreciably mitigated the growth in leverage ... in the years preceding the recent crisis," Federal Deposit Insurance Corp. head Martin Gruenberg said in a prepared statement.

Gruenberg said he believed most U.S. banks would be able to meet the new capital standards by the end of 2017.

But U.S. banks say they may be forced to sell assets andcut back on lendingto meet the new capital rules.

"Doubling the capital requirements adds little protection and may adversely affect the level and cost of credit that's so vital to continued economic expansion," Frank Keating, the American Banking Association president, said in a statement.

Hundreds of U.S. banks, including all eight subject to the new rules, received federal bailouts during the financial crisis, whichtriggered a widespread severe economic downturn. Regulators say the proposal capital requirements are aimed at preventing a repeat of that crisis.