US financial market regulators are planning to tighten the rules governing large banks. The proposed changes could increase the capital requirements for these large banks, which will increase the capital requirements by an average of 20%.

US banks could see a 20% jump in capital requirements

The US banking industry was faced with a major banking crisis earlier this year. The crisis was caused by the failure of several US lenders, including Silicon Valley Bank, Signature Bank, and recently, First Republic Bank.

This failure could necessitate changes across the banking industry. A report by the Wall Street Journal has said that US regulators are now gearing up to tighten rules for large banks. The move could result in these institutions raising their capital requirements by an average of 20%.

The regulators are tightening the rules for the banking industry to boost the resilience of the financial system aid several bank failures, which saw a major crisis in the banking sector since the 2008 banking crisis. Regulators are currently on track to ensure that they minimize the chances of a collapse of large banks that could trigger a crisis.

The report by the Wall Street Journal said that these changes could be implemented as early as this month, according to people familiar with the matter. Moreover, there has been chatter across some regulatory halls about the possibility of strict banking rules being rolled out this summer.

Federal Reserve plans to enforce capital rules

In May, a top official from the US Federal Reserve said that the US central bank would likely launch a plan to enforce capital rules. The move would also guarantee that supervisors become more aggressive in monitoring the lending activities of these banking institutions because of the recent banking failures.

The Vice Chair for Supervision at the Federal Reserve, Michael Bar, commented on this development, saying that the central bank was carefully considering enforcing rule changes for leading national banks. These changes will guarantee that the relevant regulators actively monitor the operations of these banks.

The report by the WSJ has also said that the exact amount of the capital requirements will depend upon the requirements that have been set for the bank’s business. The largest banks in the US that boast of large trading businesses will be the ones that will face the highest hike.

The banks that will see the highest increases are banking giants such as Morgan Stanley. Credit card giant American Express will also be affected by the largest hikes. The two are largely dependent on the fee income derived from investment banking and wealth management. The report noted that the changes would see these two institutions seeing a massive hike.

The contagion seen across the US banking industry this year has been partly attributed to the aggressive interest rate hikes by the Federal Reserve. The Fed has raised rates severally this year, in a move that has raised the borrowing costs and affected the performance of some institutions.