US regulators may cut bank capital hikes

The Federal Reserve together with the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency are now reportedly considering a new strategy which will also reduce the steep increase in capital requirements for the largest banks in the country from the initially proposed nearly 20 per cent.

This is a change from the original policy set by the new regulation and it follows pressure from key industry players like JPMorgan Chase CEO Jamie Dimon as reported by the Wall Street Journal on Sunday.

Under the new plan, the capital increase requirements for banks such as JPMorgan Chase and Goldman Sachs would be reduced to slightly over 50 per cent of the original amounts.

These increases are meant to ensure that banks have extra capital to be able to prevent possible losses.

However the concrete establishment of the new capital rules remains far from definite; officials of the Federal Reserve, the FDIC, and the OCC continue to bargain substantive and technical modifications.

All three regulatory agencies have failed to give remarks or respond to the ongoing discussions.

They form a group of regulators known as the Basel III regulators, which are headed by the Federal Reserve, and last July proposed a significant reform in the capital rules for banks with assets of over $100 billion.

Basel proposal is one such effort in which the proposal has attempted to increase the ability of banks to cope with potential losses to minimise the failures of banks or bailouts.

However major US banks state that they are sufficiently capitalised, and the proposed changes are not essential.

The banking industry has fiercely condemned the Basel proposal, asserting that implementation would force alterations to or the end of many products and services.

For instance, Goldman Sachs has been able to deploy small business owners to express their opposition to the proposal in Washington.

They are some of the elements used in lobbying the government to revisit the strict capital rules.

(With inputs from Reuters)