US regulators to unveil plan for banks to build cash reserves

investing.com:

By Pete Schroeder

WASHINGTON (Reuters) — U.S. regulators are set to propose a rule that could significantly raise capital requirements for larger banks, forcing them to cut costs and retain earnings in an effort to cushion against potential losses that could harm customers and investors.

The proposal, to be unveiled later on Thursday and voted on by the Federal Deposit Insurance Corporation and the Federal Reserve, marks the first in an extensive effort to tighten bank oversight, particularly in the wake of spring turmoil that saw three large financial firms fail.

The rule, which would implement a 2017 agreement by global regulators, aims to overhaul how banks gauge their riskiness, and in turn how much money they must keep on hand.

Industry opponents have already begun to criticize the plan as banks seek to soften, delay, or otherwise derail the government's long-planned effort. They argue the increases are unjustified and economically harmful.

«The banking industry probably didn’t influence the upcoming proposal as much as it wanted. But it’s determined to fight on what it sees as major issues in the months between Thursday and whenever a final rule is approved,» Ian Katz, managing director at Washington-based Capital Alpha Partners, said in a research note.

Top officials at banks like JPMorgan Chase (NYSE:JPM) and Morgan Stanley (NYSE:MS) have warned stricter rules could force them to pull back from services or increase fees. Analysts say it could take years of retained earnings to comply, pinching their ability to boost dividends or buy back shares.

In what is expected to be a lengthy and technical proposal, bank regulators want to strengthen how firms measure their risk on lending, trading and internal operations.