It's Not Just Australian Banks That Need More Capital - The US Is Moving Down The Same Path

Federal Reserve System Governor Daniel Tarullo. Photo: Chip Somodevilla/Getty Images.

While the Big Banks, led by the Australian Bankers Association head Steven Munchenburg, look like they are preparing for a battle to dilute the impact of the Murray Inquiry’s call for more capital, news from the United States suggests their cries may fall on deaf ears in Canberra and at APRA.

The Wall Street Journal reports that the Fed is contemplating a “new capital surcharge for largest lenders”.

The paper reports that:

U.S. Federal Reserve governors meet Tuesday to discuss a proposal for a new capital surcharge on the biggest banks. This could crimp their earnings power and future capital returns to shareholders.

While details aren’t yet known, Federal Reserve Governor Daniel Tarullo told the Senate Banking Committee in September the rule would be a more stringent version of a surcharge developed by a committee of international regulators. That version ranges from an additional 1% to 3.5% of capital a bank must hold as a percentage of risk-weighted assets, depending on a bank’s systemic importance.

The interesting thing is that like Murray, US regulators, led by Tarullo, are looking to increase the capital buffer in an effort to shore up the liability side of the balance sheet, in order to, in the words of David Murray, ensure that banks capital positions are “unquestionably strong” and thus avoid a run on the bank requiring a bailout.

Also like Murray, the WSJ reports that “there are some silver linings: the change should make the financial system safer.”

Indeed it will.

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