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Smaller Banks Likely to be Spared from Higher Capital Requirements: Powell

Lanon Wee

Chairman Jerome Powell of the Federal Reserve revealed on Thursday that banks with assets of less than $100 billion would not be influenced by any refreshing capital requirements. The inquires and efforts to review regulations pursued the upheaval that happened in March in the industry. FDIC Chair Martin Gruenberg gave testimony separately, telling that the impending regulations could put Basel III international rules to use on banks that range from $100 billion to $250 billion in terms of assets. Federal Reserve Chair Jerome Powell reassured members of the Senate Banking Committee on Thursday that new rules requiring banks to maintain increased capital would not apply to smaller institutions. He noted that the rule change is still in its draft form and argued that the trade-off of higher capital requirements must be balanced with its impact on lending. Powell believes that banks below $100 billion in assets will be exempt from the new regulations, which would affect the 25 largest banks in the United States. The proposal comes as a response to the March tumult in the industry, where three large regionals were forced to close due to deposit runs. Pressure for the new rules is supported by the Biden administration and lawmakers in light of relaxed regulations from 2018 that allowed larger regionals some leeway. On Thursday, FDIC Chair Martin Gruenberg testified that the Basel III international standards could be applied to banks in the $100 billion to $250 billion asset range. The new regulations are not expected to take effect until 2024. Furthermore, according to Michael Barr, the Fed's vice chair for supervision, they may require years to be fully implemented. Board of Governors Chair Jerome Powell noted that, although some other banks may see capital level increases, those with assets below $100 billion will be exempt. This is a shift in his prior stance that regulations should generally apply to both large and small banks. Raymond James' Washington policy analyst Ed Mills wrote in a client note that Gruenberg's comments support the idea that regulators are leaning towards higher capital levels. The American Bankers Association expressed worries that the upcoming requirements may be 20% greater than expected. Its president, Rob Nichols, stated that regulations should be adjusted based on a bank's risk and business model. When asked by Senator Elizabeth Warren about his responsibility in relation to the SVB failure, Powell replied that the Fed had taken lessons from the experience and would take further steps to make sure that a similar situation does not arise in the future.

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