Big banks face tougher lending rules than global rivals

Tue Jul 9, 2013 4:58pm EDT
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By Emily Stephenson and Douwe Miedema

WASHINGTON (Reuters) - The eight biggest U.S. banks will need to hold twice as much equity capital as required globally under a new rule launched by U.S. regulators on Tuesday, intended to protect taxpayers from any future costly bailouts.

The rule, launched by the country's three main banking regulators, would impose a so-called leverage ratio, a hard cap on how much banks can borrow to fund their business, requiring them to hold equity capital equal to 6 percent of total assets.

The global capital accord known as Basel III, named after the Swiss city that is home to overseer Bank of International Settlements, sets a leverage ratio of 3 percent, which critics say is unambitious.

"A three percent minimum supplementary leverage ratio would not have appreciably mitigated the growth in leverage ... in the years preceding the recent crisis," Martin Gruenberg, who heads the Federal Deposit Insurance Corp, said at a public meeting on Tuesday.

The banks would have until January 2018 to meet the new requirements. FDIC staffers said it should not be difficult for the megabanks to hit the targets, but bank groups warned that the heightened levels could harm the economic recovery.

Banks balked last week when the Federal Reserve laid out plans for future rules that will further rein in Wall Street, including a capital surcharge for the biggest banks.

The eight banks subject to the new rules are JPMorgan Chase & Co (JPM.N: Quote), Citigroup Inc (C.N: Quote), Bank of America Corp (BAC.N: Quote), Wells Fargo & Co (WFC.N: Quote), Goldman Sachs Group Inc (GS.N: Quote), Morgan Stanley (MS.N: Quote), Bank of New York Mellon Corp (BK.N: Quote) and State Street Corp (STT.N: Quote).

Some European countries have also started telling banks to hold more capital than the minimum levels. In Britain, regulators warned Barclays (BARC.L: Quote) they would not accept any plans to restrict lending after telling it to ramp up its leverage ratio to 3 percent, from 2.5 percent now.   Continued...

JPMorgan Chase & Co's international headquarters are seen on Park Avenue in New York July 13, 2012. REUTERS/Andrew Burton