Bank Capital Rules Could Hit Wealth Managers Such as Morgan Stanley

livemint.com:

U.S. regulators plan to make large banks bolster their financial footing, moves that could have an outsize effect on companies such as American Express and Morgan Stanley that rely on types of fee income targeted by the new rules. Banking regulators on Thursday proposed new rules that could raise overall capital requirements by roughly 20% at the largest banks, officials said.

The precise amount will depend on a company’s business activities, with the biggest increases expected to be reserved for U.S. megabanks with big trading businesses. Banks that depend on certain types of fee income, such as from wealth-management business, also would face heightened requirements, regulators said.

That is because the plan treats such activities as sources of so-called operational risk—a broad category that includes the potential to lose money from flawed internal processes or from external threats such as cyberattacks. Capital is the buffer banks hold to absorb potential losses. The new rules aim to more explicitly guard against the risks of a broader array of activities.

The industry argues many of these activities are benign and plans to fight the changes. Banks broadly criticized the plan, saying it needlessly increases capital for banks, lacks sufficient economic analysis and inappropriately deviates from global rules agreed to in 2017. “Today’s proposal would unnecessarily increase the amount of required capital for banks, with resulting harm for consumers and small businesses," said Greg Baer, chief executive of the Bank Policy Institute.