Without consulting Congress, the Federal Reserve, the Federal Deposit Insurance Corporation, and the Treasury Department released a new bank capital proposal through retained earnings and increased stock issuances.
This came about as a result of worldwide pressure from a group that lacked the legal right to impose rules in the US.
New Bank Regulations: Challenges for Borrowers and Shareholders
With these new regulations, borrowing will become more expensive, dividends and share buybacks will be hindered, and it will be harder to get credit cards and mortgage loans with reasonable terms and conditions.
The first bank capital regulatory framework was released in 1988 by the Basel Committee on
Banking Supervision, an international group of central banks and regulators with headquarters in Basel, Switzerland.
Capital requirements have grown more complicated and strict since then. The completion of Basel III, the most recent version of bank capital standards, serves as the foundation for the regulators’ latest proposal.
Because it accepts legally binding capital requirements from a group that lacks supranational authority in the US, the new proposal circumvents Congress. It goes against the bipartisan Economic Growth, Regulatory Relief, and Consumer Protection Act’s allowed mandates, which strategically designed capital needs.
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Competitive Challenge: Tougher Basel III for US Banks
In several instances, the proposed Basel III framework is tougher than the final version. The proposal, for instance, employs harsher estimates for residential mortgages held by banks.
Even though there is no data to back up the size of the surcharge in the plan, the calculations are 20% greater than Basel III. These onerous rules can make American banks less competitive with banks owned by foreign nations, or they might push banks to look for merger opportunities to offset cost increases.
Additionally, the proposal mandates strict leverage analyses for institutions that previously were exempt. Banks will be compelled by the new mandate to restrict funding for credit cards or cut their exposure to securitizations that finance mortgages and auto loans.
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