'Startled by Bank Failures' US Fed Urges "Big Banks to Build More Capital"

Michael Barr Fed Vice Chair
"Considering 2%P Increase in Large Banks' Capital Ratios"
Banking Sector "Will Reduce Loans" in Opposition

U.S. financial authorities are tightening capital regulations on large banks. This move aims to require banks to build additional capital to prepare for potential losses following the Silicon Valley Bank (SVB) collapse, but banks are protesting, calling it overregulation.

Michael Barr, Vice Chair of the Fed

On the 10th (local time), Michael Barr, Vice Chair of the Fed, attended a conference hosted by the Bipartisan Policy Center (BPC) in Washington DC, stating, "Recent events over the past few months have increased the need for banks to develop approaches that can resiliently respond to both familiar and unexpected risks."

According to Vice Chair Barr, the Fed is considering raising the capital ratio of large banks by an additional 2 percentage points or requiring banks to hold an extra $2 of capital per $100 of risk-weighted assets. The intention is to expand capital buffers to help banks absorb potential losses.

The Fed also plans to strengthen regulations by mandating banks and bank holding companies with assets exceeding $100 billion to hold more capital.

Vice Chair Barr explained, "The goal of increasing capital is not to break anything but to build resilience in the financial system, enabling banks to continue supplying credit to the economy."

Banks immediately opposed the Fed's announcement of tighter capital regulations. The financial sector argues that if banks, which already have sufficient capital, are required to hold more, it could lead to reduced lending to households and businesses.

Kevin Fromer, head of the Financial Services Forum, a U.S. banking group, criticized, "Capital is not free. Additional capital requirements for large banks will lead to higher funding costs and reductions in retail and corporate lending, ultimately slowing down our economy."

In fact, U.S. large banks are subject to stricter capital requirements than European banks. Another point of contention is that U.S. banks have already passed stress tests conducted by financial authorities. Previously, the Fed conducted its annual stress test on 23 large banks to assess their ability to withstand a severe recession, and all banks met the minimum capital requirements.

Tim Adams, head of the Institute of International Finance, emphasized, "The plan to tighten capital standards is surprising and unproductive because it negatively impacts the economy. The financial system has already proven to be resilient and sufficiently capitalized."

This content was produced with the assistance of AI translation services.