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Big Changes Are Coming for Big Banks
Fed Proposes Steep Increase in Capital Requirements for Those Banks Deemed Too Big to Fail
Michael Campbell
13 Aug
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Fed Proposes Steep Increase in Capital Requirements for Those Banks Deemed Too Big to Fail
In wake of the latest string of bank collapses, The Federal Reserve has proposed sweeping systemic changes for the nation’s largest banks.
To counteract what’s been perceived as unchecked over-leveraged lending, The Fed has introduced ‘Basel III’.
It calls for the following reserve requirement changes:
US banks deemed ‘systemically important’ (i.e. Too Big To Fail) will be required to set aside an additional 19% of capital reserves;
US Banks that have $250 billion+, but are not considered ‘systemically important’ must increase their capital reserves by 10%;
US Banks with between $100 billion - $250 billion in assets, will be required to increase their capital reserves by 5%.
Some additional clauses include:
Regulated banks will no longer be able to serve as their own risk managers. Instead, they will be required to use a standardized underwriting model to assess risk.
Banks will be required to take into account unrealized losses and gains when assessing their capital ratios.
If passed, Basel III would drastically tighten the lending limits of large banks across the country. As a result, borrowers would be required to bring forth higher down payments in order to meet LTV (Loan To Value) guidelines. Ultimately, this may push a large amount of middle-class wage earners out of the market. Namely those borrowers who are unable to put forth a 20% downpayment towards their next purchase.
Quick Takeaways
The 2023 Bank Collapse Crisis Has Lead to Heightened Regulation Across Financial Institutions
Via the Basel III Proposal, the Fed Is Now Calling for Higher Reserve Requirements Amongst the Nation’s Largest Banks
If Passed, Regulated Banks Would Have Tighter Limits On Lending, and As A Result, Borrowers Would Be Required to Put Forth Larger Amounts of Equity
On Another Note
✺ Taxes Continue to Tick Up in Virginia: The Richmond, Virginia metro area has seen some of the highest single year property tax increases in the nation. The average tax rate in Henrico County jumped 13.6%. — Richmond Times
✺ Mortgage Payments Move Down for the First Time in Months: The rapid rise in interest rates has sent mortgage payments through the roof. However, recent data revealed that for the first time in more than 6 months, the average monthly mortgage payment dipped lower, rather than inched higher. — National Mortgage News
✺ Zillow and Redfin Team Up to Take on New Construction: Two of the industry’s largest real estate listing platforms collaborate to bring a wider variety of new-construction home purchasing opportunities to buyers and investors alike. — Housing Wire
✺ Family Offices Are Going After Multifamily: In response to climbing interest rates and constricted liquidity, the wealthiest families are shifting their focus to actively managed multifamily real estate. — Commercial Observer
✺ NYC May Be the Hottest Market On the Map: To close out Q2, New York city delivered more housing than any other major metro in the United States - 27,400 units and roughly 8% of the nation’s total new inventory. At the same time, they’ve managed to maintain the lowest vacancy rate in the country. — Commercial Observer
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