Capital Requirements Regulation Delayed

The U.S. Federal Reserve Bank and other U.S. bank regulators said this morning that new regulations related to capital reserve requirements for the country’s banks will be delayed beyond the current January 1st effective date. The new requirements, which are part of wider banking reforms generally known as Basel III, were proposed following the 2008 financial crisis and would raise the banks’ required reserves on risk-based assets from 2% to 7%.

Federal Reserve Governor Elizabeth Duke referred to the delay in a speech this morning, noting that most community banks already meet the Basel III requirments. The new regulations would have an impact mainly on the banks which pose a systemic risk to the global financial system, that is, the banks that are deemed “too big to fail.”

U.S. banks such as JPMorgan Chase & Co. (NYSE: JPM), Bank of America Corp. (NYSE: BAC), Citigroup Inc. (NYSE: C), Goldman Sachs Group Inc. (NYSE: GS), and Wells Fargo & Co. (NYSE: WFC) are among the banks that would be most affected by the Basel III requirements.

According to a report at MarketWatch, the 19 largest U.S. bank holding companies face a capital shortfall of $50 billion if the proposed regulations were to be implemented immediately.

In its press release announcing the delay, the Fed said that the “volume of comments and the wide range of views” lead U.S. regulators to the conclusion that a January 1st date cannot be met.

Paul Ausick