(Corrects sourcing in paragraph 8 to FDIC staffer, not
By Emily Stephenson and Douwe Miedema
WASHINGTON, July 9 U.S. regulators on Tuesday
launched a plan to force the country's largest banks to hold
twice as much equity capital as required globally and protect
taxpayers against any future costly bailouts.
The proposed new rule would subject the country's eight
largest banks to a hard cap on how much they can borrow to fund
their businesses. It imposes a so-called leverage ratio that
would require them to hold equity capital equal to 6 percent of
total assets, regulators said.
At a holding company level, which includes investment
banking units not guaranteed by the Federal Deposit Insurance
Corp (FDIC), the leverage ratio would be 5 percent for the eight
Forcing banks to draw more funding from equity capital and
rely less on debt capital has been a pillar of regulators'
efforts to make them sturdier after the devastating 2007-2009
Under the so-called Basel III accord banks must ramp up
their capital buffers, but reform advocates and some members of
the U.S. Congress have pressured regulators to do more, saying
the global rules can easily be gamed.
Basel III allows banks to measure their risk with their own
mathematical models, while the accord's leverage ratio, which
does not allow such risk weightings, stands at 3 percent, a
level critics say is unambitious.
"A three percent minimum supplementary leverage ratio would
not have appreciably mitigated the growth in leverage ... in the
years preceding the recent crisis," FDIC head Martin Gruenberg
said in remarks prepared for a meeting.
An FDIC staffer said in the 2013 Fed stress tests, all of
the banks met the 3 percent leverage ratio and almost all
expected to meet the 5 percent ratio by the end of 2017.
The eight banks subject to the rules are JPMorgan Chase & Co
, Citigroup Inc, Bank of America Corp,
Wells Fargo & Co, Goldman Sachs Group Inc, Morgan
Stanley, Bank of New York Mellon Corp and State
Banks can boost their leverage ratio by raising capital, for
instance through retaining earnings, or by reducing their loans
Before the FDIC proposal came out, the average of eight
analysts' estimates for leverage ratios was 4.6 percent for
Morgan Stanley; 5.1 percent for Citigroup; 5.3 percent for
JPMorgan Chase; 5.7 percent for Goldman and Bank of America
Corp; and 7.5 percent for Wells Fargo.
The rule was proposed simultaneously by the country's three
main banking regulators: the FDIC, the Office of the Comptroller
of the Currency (OCC) and the U.S. Federal Reserve.
The OCC and the FDIC also adopted a final rule to introduce
the Basel III capital accord, following on from a similar
decision by the Fed last week.
(Additional reporting by Lauren LaCapra in New York, Editing by