Federal regulators are about to require regional banks to increase their capital reserves against weaknesses in how the institutions carry and account for interest-based assets, according to a Reuters report. Reportedly, the Federal Reserve has estimated this would be a 3% to 4% increase in the amount of capital the mid-sized banks would need to hold.
Increasing capital requirements is typically an irritating topic for banks. It means they take money otherwise available for lending, investing, or meeting liabilities like deposits and make it unavailable even though it sits in the vault, so to speak.
This goes back to the implosion of three regional banks in early 2023: Silicon Valley Bank, Signature Bank, and First Republic Bank.
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