Latest news with #capitalrequirements
Yahoo
a day ago
- Business
- Yahoo
US Regulators Mull Easing Banks' Capital Rule on Treasury Trades
In a move aimed at enhancing liquidity in the $29 trillion U.S. Treasury market, U.S. regulators are planning to ease a key capital requirement that has long constrained large banks' trading activity. The Federal Reserve, Federal Deposit Insurance Corporation, and Office of the Comptroller of the Currency are reportedly considering a proposal to lower the enhanced supplementary leverage ratio (SLR) by up to 1.5 percentage points for the largest U.S. banks, including JPMorgan Chase JPM, Goldman Sachs GS, Morgan Stanley MS, and Wells Fargo WFC. Currently, all U.S. banks are obligated to hold capital equal to at least 3% of their total exposures, including assets and off-balance sheet items like derivatives. The largest global banks are required to maintain an additional 2%, bringing their minimum leverage ratio to 5%. The proposal would reduce the capital requirement under the SLR for bank holding companies from 5% to a range of 3.5% to 4.5%, while subsidiaries could see their threshold drop from 6% to the same range. Fed Chair Jerome Powell has raised concerns that strict capital rules may limit banks from holding Treasuries, particularly during times of volatility. Under the current framework, Treasuries are treated in the same category as higher-risk assets, which can reduce incentives for banks to trade or hold them. Michelle Bowman, the Fed's vice chair for supervision, earlier this month, stated that leverage rules are meant to support capital strength. However, when these ratios are set too high, they may limit market activity and reduce liquidity. A proposed easing of these capital requirements could benefit major banks such as JPMorgan Chase, Goldman Sachs, Morgan Stanley, and Wells Fargo by reducing the amount of capital they must hold in reserve. This would give them more flexibility to expand operations, particularly in lending and Treasury trading. In addition, lower capital buffers could enhance bank profitability by freeing up funds for investment and business growth. However, the overall effectiveness of the changes will depend on how banks respond and whether regulators introduce further reforms. Currently, JPMorgan, Morgan Stanley, and Wells Fargo carry a Zacks Rank #3 (Hold), while Goldman Sachs has a Zacks Rank #4 (Sell). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here. Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report The Goldman Sachs Group, Inc. (GS) : Free Stock Analysis Report Wells Fargo & Company (WFC) : Free Stock Analysis Report JPMorgan Chase & Co. (JPM) : Free Stock Analysis Report Morgan Stanley (MS) : Free Stock Analysis Report This article originally published on Zacks Investment Research ( Zacks Investment Research Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Reuters
2 days ago
- Business
- Reuters
Regulators' plans for US bank leverage relief may underwhelm US Treasury market
NEW YORK, June 18 (Reuters) - U.S. Treasury market participants hoping for a long-awaited shift in bank leverage rules may be in for a letdown if U.S. regulators choose to ease capital requirements rather than exclude U.S. government bonds from leverage calculations. The Federal Reserve said this week it would weigh proposals to ease leverage requirements for large banks at a June 25 meeting, launching what's likely to be a wider review of banking regulations. The agenda includes potential changes to the "supplementary leverage ratio," a rule that mandates banks hold capital against all assets, irrespective of risk. Regulators including the Fed, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency have been considering whether to tweak the rule's formula to reduce big banks' burdens or provide relief for extremely safe investments, like Treasury bonds, Reuters has reported. Currently, all banks are required to hold 3% of their capital against their leverage exposure, which is their assets and other off-balance sheet items like derivatives. The largest global banks must hold an extra 2% as well in what is known as the "enhanced supplementary leverage ratio." The Fed is expected to propose tweaks to that ratio in a bid to reduce the overall burden of that requirement, as opposed to broadly exempting categories of assets from the requirement, such as Treasury bonds, according to two industry officials. However, it is possible the Fed could seek input on some exemptions, the officials said. The FDIC announced its own meeting next Thursday, where the agency will also discuss proposed changes to that ratio. On Tuesday, Bloomberg reported that regulators plan to reduce by up to 1.5 percentage points the enhanced ratio for the biggest banks, bringing it down to a range of 3.5% to 4.5%. "Lowering the capital requirements instead of a Treasury carve-out from the SLR is a weaker form of regulatory easing, and in my view it doesn't fully address the constraint dealers face during intense market stress," said Steven Zeng, U.S. rates strategist at Deutsche Bank. "In our view, the news is moderately underwhelming," analysts at Wells Fargo said in a note. "We think that many market participants were anticipating a carve out of UST assets from the denominator." The Fed did not immediately respond to a request for comment. Spreads between long-term swap rates and Treasury yields tightened on Wednesday, turning more negative, even as earlier in the year they had been widening amid hopes that regulatory shifts in bank capital rules would bolster demand for Treasuries. The move likely reflected disappointment on the news that regulators plan to lower the requirements, said Zeng. "I still think a full carve-out is the most effective way to bolster market liquidity and compress the spread between Treasuries and swaps, but understandably it's also a significant jump for Fed regulators," he said. The 10-year swap spreads were last at minus 54 basis points from minus 53 on Tuesday, while 30-year swap spreads were last at minus 88 bps from minus 86.5 bps on Tuesday. Banks have argued for years that the SLR, established after the 2007-2009 financial crisis, should be reformed. They say it was meant to serve as a baseline, requiring banks to hold capital against even very safe assets, but has grown over time to become a constraint on bank lending. U.S. Treasury Secretary Scott Bessent has said in a Bloomberg interview last month that a shift in the ratio could bring Treasury yields down significantly. Treasury market participants have come to see it as a major obstacle to banks providing liquidity to traders, particularly at times of heightened volatility, but there are doubts over whether an easing of the requirement will boost Treasury prices. "We're skeptical that lowering SLR will trigger a massive round of buying in U.S. Treasuries from major U.S. banks," BMO Capital Markets analysts said in a note on Wednesday.
Yahoo
2 days ago
- Business
- Yahoo
Regulators' plans for US bank leverage relief may underwhelm US Treasury market
By Davide Barbuscia and Pete Schroeder NEW YORK (Reuters) -U.S. Treasury market participants hoping for a long-awaited shift in bank leverage rules may be in for a letdown if U.S. regulators choose to ease capital requirements rather than exclude U.S. government bonds from leverage calculations. The Federal Reserve said this week it would weigh proposals to ease leverage requirements for large banks at a June 25 meeting, launching what's likely to be a wider review of banking regulations. The agenda includes potential changes to the "supplementary leverage ratio," a rule that mandates banks hold capital against all assets, irrespective of risk. Regulators including the Fed, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency have been considering whether to tweak the rule's formula to reduce big banks' burdens or provide relief for extremely safe investments, like Treasury bonds, Reuters has reported. Currently, all banks are required to hold 3% of their capital against their leverage exposure, which is their assets and other off-balance sheet items like derivatives. The largest global banks must hold an extra 2% as well in what is known as the "enhanced supplementary leverage ratio." The Fed is expected to propose tweaks to that ratio in a bid to reduce the overall burden of that requirement, as opposed to broadly exempting categories of assets from the requirement, such as Treasury bonds, according to two industry officials. However, it is possible the Fed could seek input on some exemptions, the officials said. The FDIC announced its own meeting next Thursday, where the agency will also discuss proposed changes to that ratio. On Tuesday, Bloomberg reported that regulators plan to reduce by up to 1.5 percentage points the enhanced ratio for the biggest banks, bringing it down to a range of 3.5% to 4.5%. "Lowering the capital requirements instead of a Treasury carve-out from the SLR is a weaker form of regulatory easing, and in my view it doesn't fully address the constraint dealers face during intense market stress," said Steven Zeng, U.S. rates strategist at Deutsche Bank. "In our view, the news is moderately underwhelming," analysts at Wells Fargo said in a note. "We think that many market participants were anticipating a carve out of UST assets from the denominator." The Fed did not immediately respond to a request for comment. Spreads between long-term swap rates and Treasury yields tightened on Wednesday, turning more negative, even as earlier in the year they had been widening amid hopes that regulatory shifts in bank capital rules would bolster demand for Treasuries. The move likely reflected disappointment on the news that regulators plan to lower the requirements, said Zeng. "I still think a full carve-out is the most effective way to bolster market liquidity and compress the spread between Treasuries and swaps, but understandably it's also a significant jump for Fed regulators," he said. The 10-year swap spreads were last at minus 54 basis points from minus 53 on Tuesday, while 30-year swap spreads were last at minus 88 bps from minus 86.5 bps on Tuesday. Banks have argued for years that the SLR, established after the 2007-2009 financial crisis, should be reformed. They say it was meant to serve as a baseline, requiring banks to hold capital against even very safe assets, but has grown over time to become a constraint on bank lending. U.S. Treasury Secretary Scott Bessent has said in a Bloomberg interview last month that a shift in the ratio could bring Treasury yields down significantly. Treasury market participants have come to see it as a major obstacle to banks providing liquidity to traders, particularly at times of heightened volatility, but there are doubts over whether an easing of the requirement will boost Treasury prices. "We're skeptical that lowering SLR will trigger a massive round of buying in U.S. Treasuries from major U.S. banks," BMO Capital Markets analysts said in a note on Wednesday. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Bloomberg
10-06-2025
- Business
- Bloomberg
UBS Declines as Analysts Warn Capital Rules Will Hurt Buybacks
UBS Group AG fell the most in two months as analyst warned that new capital demands imposed by Switzerland could crimp the bank's competitiveness and its ability to make investor payouts. Shares of the wealth manager declined as much as 7.4% on Tuesday, more than reversing gains from Friday, when the publication of the capital requirements was greeted with initial relief that months of uncertainty had finally ended.
Arab News
10-06-2025
- Business
- Arab News
Saudi insurance market mergers to accelerate amid regulatory push: Fitch
RIYADH: Saudi Arabia's insurance sector is headed for a wave of consolidation as tougher capital rules and fierce price competition squeeze smaller players, Fitch Ratings said in a new report. The agency expects mergers and acquisitions to accelerate as many insurers struggle to meet new capital requirements or remain profitable amid intense competition and rising costs. The shakeout comes as the newly established Saudi Insurance Authority, which took over from the Saudi Central Bank and the Council of Health Insurance in November 2023, steps up efforts to stabilize and modernize the market in line with Vision 2030. Several smaller insurers are already in talks with larger rivals as they look for ways to shore up their capital positions and ensure long-term survival. 'These measures will be credit positive for the sector in the long term,' Fitch said. 'However, they will increase insurers' regulatory compliance costs, particularly during implementation, adding to pressure on profitability in the short term.' Growth, but thin margins The findings come amid a period of rapid change in the Kingdom's insurance sector. Even with tighter regulations and competitive pressures, the industry remains a vital pillar of the Saudi economy, covering everything from health and motor to property and mega-project risks. Despite these challenges, the insurance sector is still growing. According to KPMG's 'Saudi Arabia Insurance Overview 2025,' total revenue rose 16.9 percent year on year in the third quarter of 2024, driven by a boom in compulsory medical cover, increased motor vehicle activity, and the Kingdom's property development surge. Health insurance, which accounts for roughly 60 percent of the market, saw revenue climb 13.6 percent in the third quarter alone, thanks to mandatory employee cover. Motor insurance premiums also rose over 20 percent amid a robust auto market, while property and casualty insurance posted 20 percent growth driven by large-scale construction projects. Profitability remains a sticking point, however. Health insurance margins have been hurt by medical inflation — the rising costs of medical goods and services — which has pushed up claims payouts even as price competition remains fierce. Arab News has previously reported on how medical inflation, fueled by technological advances, labor costs, and changing health needs, makes it difficult for insurers to improve their combined ratios. Fitch noted that of the 10 largest insurers, six made an underwriting profit in the first quarter of 2025, but several did so only marginally. Four of the top 10 reported underwriting losses, showing just how challenging the environment remains for even the biggest players While property, casualty and life insurance offerings remain generally profitable, medical coverage has weaker margins except at the largest insurers, according to Fitch. Motor insurance, the second-largest segment, continues to face aggressive pricing challenges, particularly for compulsory third-party coverage. A significant regulatory shift is also underway. Starting from January, insurers must now cede 30 percent of their reinsurance to local firms. This move is designed to bolster domestic reinsurance capacity, but it may temporarily raise counterparty risks for insurers since local reinsurers typically have thinner capital bases. Over time, however, the quota might help local reinsurers build scale and improve risk management, supporting a more resilient market that keeps premium income and jobs within the Kingdom. Fitch sees consolidation as inevitable — and ultimately healthy — for the sector. As competition intensifies and regulators raise the bar, many smaller players will likely seek mergers or alliances to survive. This, the agency says, should create a more stable and competitive insurance industry capable of supporting Saudi Arabia's Vision 2030 transformation.
