Banks Don’t Need Big Hike in Capital Requirements, Hill Says

U.S. Rep. French Hill, R-Ark.: "We are already well-capitalized and exceedingly well-capitalized in comparison to Japanese or Chinese banks or any other banks in the world." (Madison Ogle)

With talks of a looming recession, bank boards and bank executives “need to be cautious” about the direction the Federal Reserve is moving, particularly with the capital reserves banks are required to have on hand to fend off sudden losses, U.S. Rep. French Hill, R-Ark., told Arkansas Business during a recent visit to Little Rock.

The Fed’s regulatory practices have come into question again after the collapses of Silicon Valley Bank of Santa Clara, California, and Signature Bank of New York in March after depositors rushed to withdraw their money.

Fed regulatory officials have said that capital requirements for major and regional banks could increase, with some requirements climbing to 20%.

The nation’s 23 banks passed the Fed’s “stress tests” this year, the agency said Wednesday. But the tests revealed some weaknesses among midsize and “super regional” banks, with some getting a passing grade with a smaller cushion than usual.

“I don’t believe U.S. banks need a 20% increase in capital requirements,” said Hill, who represents Arkansas’ 2nd District. “Which is the estimate I’ve heard in Washington for what the Fed is proposing for banks [with assets] of $100 billion and up.

“We are already well-capitalized and exceedingly well-capitalized in comparison to Japanese or Chinese banks or any other banks in the world.”

The country’s global systemically important banks, or GSIBs, have about 11.3% capital on hand, more than the roughly 9% European GSIBs maintain, Hill said.

“So we don’t know that a major capital increase is justified from regulators,” he said. “If you think the economy is going into recession, it might not be a good time to impose it across the board.”

While regional banks like First Republic Bank of San Francisco, which also collapsed after a bank run this spring, might face more oversight from the Fed, Hill said he does not think “locally owned and operated headquartered banks in Arkansas would be impacted.”

Correction: A previous version of this article missquoted the asset size of the banks that could see an increase in capital requirements by the Federal Reserve. We have corrected the error.