The Federal Reserve approved new rules last week to implement global Basel III capital-adequacy standards and applied those requirements to virtually all U.S. financial institutions. The move may make providing services to middle-market corporate clients prohibitively expensive for banks.
Other U.S. banking regulators are expected to follow the Fed's lead and approve similar rules soon. Ultimately, brokers and other nonbank entities are expected to be subject to similar standards.
The Fed rules, which will be fully in effect by 2019, require financial institutions to hold common equity equal to 4.5% of their risk-weighted assets and an additional 2.5% buffer, for a total equity cushion of 7%. That compares with a current standard that can be as low as 2%. The largest institutions will be tagged with a capital surcharge between 1% and 2.5%.
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