Fed Votes to Hike Capital Requirements

The Federal Reserve Board of Governors tentatively approved guidelines Friday that would raise capital requirements for bank holding companies and state-chartered banks that are members of the Federal Reserve System.

The change, proposed last July, would increase the capital requirement from 5.5% of net worth to 6% for large multinational and regional banks--those with assets of more than $150 million.

The requirement would remain at 6% for smaller banks, which generally welcome the change because they say it puts them on a more even level with their larger competitors.

The minimum capital requirement represents the shareholders’ investment in the bank as a percentage of the bank’s outstanding assets, mostly loans.

The new standards mainly affect a handful of the nation’s largest banks, most of which have been moving toward the 6% minimum for some time. An estimated 95% of the nation’s banks already exceed the requirement.

The Federal Deposit Insurance Corp., which regulates some 9,000 state banks that are not members of the Federal Reserve System, adopted a regulation Feb. 11 imposing a 6% capital minimum on the institutions it oversees.

And the Comptroller of the Currency, who supervises national banks, is expected to impose similar requirements soon.