The New Bank Capital Adequacy Standards

Abstract

HE thi-ee federal agencies that regulate US, commercial banksthe Federal Deposit Insurance Corporation (FDIC), Federal Reserve FED) and Office of the Comptroller of the Currency (0CC)-recently adopted new capital adequacy standards for hank supervision and regulation purposes.' The new minimum standards are 5,5 percent for the ratio of primary capital to total assets and 6 percent fot-the ratio of total capital to total assets.' In general, the new standards increase the minimum capital requirements for larger banks, while reducing them for' smaller banks,

Determinants of Valuation Effects for Security Offerings of Commercial Bank Holding Companies

“…All three federal banking agencies limit the aggregate amount of secondary capital to less than 50 percent of the amount of a bank's primary capital. See Santomero [23] and Gilbert, Stone, and Trebing [7] for a discussion.…”

Inflation Versus Central Bank Independence? Banking Regulation and Financial Stability in the U.S. and Germany

“…Since national banking law until the late 1980s only defined a minimum absolute level of required capital (rather than capital ratios), the individual federal regulatory authorities were dependent upon informal pressure to influence banks to maintain adequate capital levels: "...none of the regulators had formally stated minimum requirements for the ratio of total capital to total assets. Instead, each regulator typically compared capital ratios for banks grouped together by common characteristics, including asset size, and attempted to persuade those banks that had relatively low capital ratios to raise them" (Gilbert, Stone, and Trebing 1985).…”

“…Studies commissioned in the 1960s and 1970s comparing the costs and benefits of membership in state versus national level regulatory regimes indicated that the costs of national regulation were considerably greater than the benefits in many states, which in addition to less rigorous capital standards often had lower minimum reserve requirements, cheaper deposit insurance programs, and laxer risk diversification standards. The possibility of "exit" to state-level systems to avoid the costs of federal regulation became known as the "membership problem" for the Federal Reserve System (Gilbert, Stone, and Trebing 1985).…”

“…The first attempt, in 1981, involved an agreement among federal regulators to require a capital ratio of six percent for smaller banks and five percent for other banks. Since the money center banks were struggling with so-called "less developed country" (LDC) loans and had no chance of meeting these standards, federal regulators exempted the seventeen largest banks from these requirements (Greider 1987;Gilbert, Stone, and Trebing 1985). The capital levels of a number of these larger banks continued to deteriorate during the 1980s; the two most aggressive expanders, Citibank and Bank of America, in all likelihood became technically insolvent but were allowed to continue operations by the regulators due to the fear of the panic that would be set off due to the bankruptcy of the largest two US banks (Miller 1993).…”

A Review of the Eighth District's Banking Economy in 1986

“…The proposed guideline would assign weights based on relative risk to assets and certain offbalance sheet items. The sum of these weighted asset values is the weighted risk asset total against which actual primary capital would be compared.°S ee Gilbert, Stone and Trebing (1985).…”