The Office of the Comptroller of the Currency (OCC), an independent bureau of the US Department of the Treasury, refuted claims by banks that more rigid capital rules will inflate borrowing costs.
US regulator protests bank claims regarding stricter capital regulations
Under Basel III, an international regulatory reform created by the Basel Committee on Banking Supervision, stricter regulations are now finalised to bolster the regulation, supervision, and risk management of banks to avoid a repeat of the 2007 to 2009 global financial crisis.
US banks have, however, been contesting these rules for months, claiming they will only increase borrowing costs. The regulator responded to these claims, saying banks could curtail dividends and buybacks to balance the scales.
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Constituting the biggest tussle between financial institutions and regulating authorities in the US in many years, the debate on minimum international capital standards shows no signs of abating or reaching a middle ground. Legally, banks must retain a certain amount of capital to counter probable losses. In a Financial Times interview, the acting director of the OCC, Michael Hsu, explained:
The banking industry has said the new rules are going to hurt all kinds of folks in the real economy. I have encouraged them – provide analysis on what your share buybacks and dividend policies are going to be under these different scenarios. Because there’s a choice to be made on capital.
According to the new rules, US banks would have to increase retention capital by $2 for every risk-based $100. Loans fall in this category.
