Megabanks Beware: Regulatory Big Brother Wants a Tighter Leash Amid Recent Bank Failures

U.S. regulators are reportedly gearing up to enforce stricter measures on large banks to enhance their financial stability following a series of failures among midsize banks earlier this year.
People familiar with the plans have indicated that the proposed changes could result in an average increase of approximately 20% in overall capital requirements for larger banks.
The changes may be introduced as early as this month, Wall Street Journal reported.
The specific amount will depend on each bank's business activities, with the most significant increases expected for U.S. megabanks with substantial trading operations.
Banks heavily reliant on fee income may also face substantial capital increases. Capital serves as a buffer that banks are obligated to hold to absorb potential losses.
The move to reinforce capital requirements is anticipated to be the first in a series of steps to strengthen Wall Street regulations, departing from the more lenient regulatory approach of the previous Trump administration.
However, critics argue that stricter requirements are unnecessary and could potentially compel more banks to merge to remain competitive.
Additionally, regulators are expected to propose the discontinuation of a regulatory reprieve that allowed some midsize banks to mask losses on securities they hold.
Supporters of this change argue that it would have compelled banks like Silicon Valley Bank to address the issue earlier as interest rates rose and the value of their holdings declined.