On July 27, 2023, the Office of the Comptroller of the Currency (OCC), the Federal Reserve, and the Federal Deposit Insurance Corporation (FDIC) issued proposals that would make important adjustments to the capital framework and raise the overall level of capital that the largest banks have to maintain. Capital requirements are among regulators’ most powerful tools in managing risky bank behaviors and reducing the likelihood of bank failures and taxpayer bailouts. By requiring banks to finance more of their loans and investments using their own money, rather than relying on debt, strong capital standards help banks absorb financial losses. While the actions proposed by the agencies take important steps to strengthen the banking system, CAP’s empirical analysis suggests that the additions to bank equity may still be too small to substantially enhance firms’ stability.
The spreadsheet submitted to the regulators shows that the new aggregate ratio of common equity tier 1 (CET1) capital to risk-weighted assets (RWAs) for the U.S. global systemically important banks (GSIBs) is 14.69 percent. Increasing the CET1 requirements by 19 percent would increase the aggregate CET1 capital to roughly $931 billion. Thus, the new ratio would be 12.87 percent. The spreadsheet and comment letter reflect these updates.
Click here to read CAP’s comment letter on the bank capital requirements.