Changes to capital requirements under new Treasury proposals would free up billions in cash on banks’ balance sheets
The Treasury Department’s proposals to overhaul financial regulation offer banks, especially the biggest, potentially significant relief when it comes to how much capital they must hold... That would answer banks’ biggest complaints in the post-financial crisis era—that excessive capital requirements are holding them, as well as lending, back...If the Treasury’s changes were adopted, they could allow banks to return more capital to shareholders, which in turn would boost returns on equity and possibly further bolster stock-market valuations. The downside, say critics, is that this could weaken banks’ loss-absorbing buffers and threaten confidence in the financial system... Current rules say the biggest banks must hold capital equal to at least 5% of their total leverage exposure
.. Treasury is proposing that banks be allowed to exclude some holdings from that measure, namely cash deposited at central banks, U.S. Treasury debt, and some of the money held at clearinghouses related to derivatives... The House recently passed the so-called Choice Act, which would allow banks to opt out of stringent regulation if they maintained a leverage ratio of at least 10%... At J.P. Morgan alone, the shortfall to 10%, which currently would be about $105 billion, would fall to about $60 billion or less... The largest “global systemically important banks,” known as G-SIBs, are required by U.S. regulators to hold an additional capital buffer.. This charge varies, but will average 2.8 percentage points