US mid-tier banks set to face tighter capital requirements following SVB collapse
Mid-tier banks in the US are set to face tighter capital rules as regulators respond to the near collapse of the regional banking system earlier this year.
Chair of the Federal Deposit Insurance Commission (FDIC) Martin Grueberg said regulators will seek public comment on “changes to the US capital framework”.
The proposals will come as part of the newest round of the Basel regulations, the global regulatory overhaul that began after the financial crisis.
Gruenberg suggested that lenders with over $100bn in assets in the US would likely be subject to the new rules. He suggested that if the rules had been in place earlier, the loss of confidence in Silicon Valley Bank (SVB) “might have (been) averted”.
SVB, which had $210bn in assets, collapsed following a massive bank run. Investors panicked after the bank sold long-dated bonds at a significant loss in order to recapitalise itself.
Its collapse sparked a panic which saw two other regional lenders fall in the space of a month and prompted steep share price declines in banks around the world.
“The lesson to take away is that banks in this size category can pose genuine financial stability risks and the federal banking agencies need to review carefully the supervision of these institutions, particularly for interest rate risk in the current environment,” Gruenberg commented.
“A robust regulatory capital framework is the cornerstone of a resilient banking system,” he concluded.
Most jurisdictions around the world already impose tighter restrictions on mid-tier banks. In the UK for example, the Basel rules apply for banks with assets between £15bn and £25bn.
The rules on US lenders were relaxed back in 2018 by the Trump administration, something which many have pointed to as a key contributor to the crisis.
Many of the banks hardest hit in the aftermath of SVB’s collapse have stabilised, although their shares are still trading significantly lower than at the beginning of the year.
Concerns still remain around the exposure of mid-tier US lenders to the commercial real estate sector, which is being hit hard by the rise in interest rates.