US regulator plans strict rules for big banks

Bank regulators are contemplating the application of stricter capital rules to banks holding assets exceeding £100 billion, according to the head of the Federal Deposit Insurance Corporation (FDIC). FDIC Chairman Martin Gruenberg highlighted the risks posed by banks of this size to the financial system, citing the spring turmoil in the banking sector during which three banks failed and required regulatory intervention to protect deposits.

In a speech, Gruenberg stated, “Recent experience has demonstrated that the failure of banks in this size category can have financial stability consequences.” He emphasised the need for heightened oversight and stricter regulations for banks in this category. The FDIC, along with other agencies, is expected to propose new capital rules to implement an international bank rule agreement in the near future. However, the finalisation of these rules is unlikely to occur before mid-2024.

The upcoming Basel III “endgame” rules have already faced significant criticism from the banking industry, which argues that excessively stringent requirements could impede the functioning of banks and the broader economy. Despite this opposition, Gruenberg asserted the importance of establishing tougher regulations, particularly in light of the recent bank failures. He stated that a robust regulatory capital framework is vital for a resilient banking system and that the proposed rules present an opportunity to enhance the financial resilience and stability of the banking system, ultimately benefiting the US economy.

Gruenberg’s remarks underscore the growing recognition among regulators of the need for increased oversight and stricter capital requirements for large banks. The proposed regulations aim to mitigate the risks associated with banks holding substantial assets and to ensure the stability of the financial system. As the regulatory process unfolds, discussions between regulators, lawmakers, and the banking industry will continue to shape the final form of the rules in order to strike a balance between strengthening the sector and supporting economic growth.

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