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July 10, 2013

U.S. Banks Seen Freezing Payouts as Harsher Leverage Rules Loom

“The biggest U.S. banks, after years of building equity, may continue hoarding profits instead of boosting dividends as they face stricter capital rules than foreign competitors.

 

The eight largest firms, including JPMorgan Chase & Co. and Morgan Stanley, would need to retain capital equal to at least 5 percent of assets, while their banking units would have to hold a minimum of 6 percent, U.S. regulators proposed yesterday. The international equivalent, ignoring the riskiness of assets, is 3 percent. The banks have until 2018 to fully comply.

 

The U.S. plan goes beyond rules approved by the Basel Committee on Banking Supervision to prevent a repeat of the 2008 crisis, which almost destroyed the financial system. The changes would make lenders fund more assets with capital that can absorb losses instead of using borrowed money. Bankers say this could trigger asset sales and hurt their ability to lend, hamstringing the nation’s economic recovery.

 

‘The higher requirement for bank subsidiaries does have significance for the shareholders of their parent companies,’ said Frederick Cannon, director of research at Keefe, Bruyette & Woods Inc. The units would have to retain earnings at least temporarily to comply, which would prevent holding companies from distributing dividends as most profit comes from those units, he said.”

 

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Read the full Bloomberg article here

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