The majority of bank executives are concerned that any increase in capital requirements for banks with more than $100 billion in assets will trickle down to smaller institutions, according to a recent IntraFi survey of bank executives.
Thirty-nine percent said raising capital requirements on larger institutions was appropriate, while 19 percent believed there was no need to do so, according to the survey of bank CEOs, presidents, CFOs and chief operating officers from 545 U.S. banks.
On July 27, the FDIC, Federal Reserve and Office of the Comptroller of the Currency proposed a substantial overhaul of bank capital rules. Under the plan, bank holding companies with more than $100 billion in assets would need to set aside 16 percent more in capital to protect against unrealized losses. FDIC Chair Martin Gruenberg said the majority of banks have enough capital to meet the requirements. The changes, W are expected to be phased in over three years. The final rule is expected to be effective July 1, 2025, with it taking full effect during the second half of 2028.
“A robust regulatory capital framework is the cornerstone of a resilient banking system,” Gruenberg said. “Strong levels of capital available to absorb losses ensure that banks have the ability to continue to lend to their customers through business cycles, including during stress.”
Federal Reserve Gov. Michelle Bowman said last month that any shift to a uniform capital requirements framework would place smaller banks at a competitive disadvantage and could require them to either pull out of key business lending lines or merge just to meet the necessary economies of scale.
The IntraFi survey also included commercial real estate. Seventy-one percent of bank executives said their office-based loan portfolio was less than 10 percent of capital, with smaller banks even more likely to have a smaller footprint. Sixty-one percent said they were not concerned with their exposure to CRE, while 36 percent reported being “somewhat” concerned. Of those in the latter category, 32 percent had reduced their office-based CRE portfolios while 21 percent had restricted loan terms.
The survey was taken just before the Federal Reserve officially launched its FedNow instant payments service on July 20. Nearly half of executives said they are considering offering FedNow, while 29 percent don’t plan to do so.
Other report findings included:
- Following the Federal Reserve’s decision to keep its benchmark federal funds rate at between 5 and 5.25 percent last month, 73 percent of executives said the Fed will not achieve a soft landing. On July 26, the Fed raised the rate 25 basis points to between 5.25 and 5.50 percent.
- Sixty-seven percent said their access to capital was the same as 12 months ago, while 72 percent expect it to be unchanged 12 months from now. Forty-one percent reported a moderate decrease in loan demand, while 35 percent said there had been a slight increase. Forty-three percent expect a moderate decrease in loan demand in the next year, while 31 percent anticipate that demand will remain the same.