US Banks at Risk of Falling Under New Capital Rules

Wells Fargo, State Street and JPMorgan Chase & Co are below or almost at minimum capital thresholds expected to be included in a rule still being hammered out by U.S. regulators that’s meant to mitigate taxpayer losses in another financial crisis, according to a Reuters analysis.

U.S. banks are already required to hold equity equal to about 10 percent of their balance sheet to serve as a shock absorber to cover the risk of a sharp drop in the value of loans, investments and other assets on their books. Banks expect U.S. regulators to require them to hold another 10 percent in bonds with maturities of more than a year and other instruments, as part of the forthcoming rule.

Wells Fargo’s (WFC.N) loss-absorbing capital stood at 17 percent at the end of last year, State Street’s (STT.N) was 18.2 percent and JPMorgan (JPM.N) stood at 19.1 percent, according to a Reuters analysis of eight banks, based on regulatory filings and methodology recently presented by Citigroup.

“These are figures which have been circulating,” said Bernard De Longevialle, a credit analyst at Standard & Poor’s. “The market tends to view these three (banks) as those who would potentially be the most stretched.”

Analysts and officials at banks are basing their estimates for the benchmarks partially on discussions with regulators and on wider market assumptions for what would be a reasonable level. The Federal Reserve has typically taken a tougher stance than its counterparts in the European Union.

The Fed and the Federal Deposit Insurance Corporation (FDIC), who are jointly working on the rule, declined to comment.

via Reuters

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza