Officials at the Federal Deposit Insurance Corporation (FDIC) voted Thursday to formally propose a 澳洲幸运5官方开奖结果体彩网:set of rules requiring big banks to hold 澳洲幸运5官方开奖结果体彩网:more capital, making them more resilient against risks, including bank runs like the one that brought down Silicon Valley Bank in March, when panicked depositors withdrew their money at a rate of a milli꧟on dollars per second.

Thꩵe proposed regulations, which have yet to be finalized, would affect banks with $100 billion or more in assets—the 30 largest in the country.

"Struggling banks will limit their lending. Failed banks don't lend at all," said Rohit Chopra, a member of the board that voted 3-2 to advance the rules. "We've never endured an economic calamity that harms our people because our largest banks were too stable."

Thursday’s vote advanced an effort that started in the wake of the Great Financial Crisis to reform rules governing how much capital banks must hold. Capital is the difference between a bank’s assets and liabili♊ties; in other words, the financial cushion that they have against losses. The proposed rules are intended to guard against losses in many forms, including bank runs, investments or loans gone bad, or even attacks by hackers.

How the Rules Would Work

The rules, laid out in a 1,089-page proposal, are complicated and would apply to banks with $100 billion or more in assets as well as those that trade heavily.

In general, the rules would change the way capital requirements are calculated in such a way that big banks would be required to hold more of it—increasing core capital requirements by 16%, according to a fact sheet released by the FDIC. Most baꦕnks already have enough capital to meet ജthe proposed requirements, the regulator said. 

For example, banks would have to overhaul the way large banks calculate so-called 澳洲幸运5官方开奖结果体彩网:risk-weighted assets. In general, the mor♒e risky assets 🉐a bank holds, the more capital they’re required to keep on hand to guard against losses. The rules would make the banks use a standard method to calculate their capital requirements and limit their ability to use models that they create.

Trade-offs

The new rules would make banking safer, but could have some negative consequences, said Joseph Wang, CIO at Monetary Macro, an investment management firm. 🎶

"You can easily create a system where you just have banks hold a whole bunch of capital and because of all that capital, banks never fail," he said. "But capital is very expensive, and so that makes lending less available to the public."

For instance, he sai𒁃d, b🌠orrowing would likely get harder for small to medium-sized businesses that rely on banks for funding while leaving unscathed large corporations, which tend to issue bonds instead of borrowing from banks. 

Banks Are Opposed

The proposal is only the beginning of what is likely to be a💛 drawn-out rulemaking process involving heavy lobbying from all sides, Wang said. The banking industry, for instanceꦍ, is generally opposed to the changes.

“Today’s proposal would unnecessarily increase the amount of required capital for banks, with resulting harm for consumers and small businesses and a continuꦇed migration of financial activity into unregulated parts of the financial sector,” The Bank Policy Institute, a nonprofit group representing banks, said in a press release.

Stricter rules for banks will drive business to institutions not covered by the rules, such as hedge funds, private 𒅌equity firms, and other kinds of financꦬial companies, the BPI argued.

A public comm🍷ent period will give both sides a chance to debate whether a safer banking system is worth the potential downsides. 

"The more capital a bank holds, the safer the banking system is. It’s just that you have to take into account the trade-offs as well," Wang said. "It's not clear that this trade-off is worth it."

Correction—July 28, 2023: This article was corrected after it misstated what the FDIC's initials stand for. The article was originally published on July 27.