BANK holding companies would not be allowed to dip below the strict capital standards of their federally insured bank units, under a proposal issued by US bank regulators yesterday.
Advocates of this approach argue bank holding companies relied too heavily on their insured banking units as a source of capital strength during the financial crisis, leading to government bailouts.
The rule proposed by the Federal Deposit Insurance Corp (FDIC) and other banking regulators yesterday would set a uniform risk-based capital floor across the banking industry, but will not necessarily spark any capital raising in the short term.
US banks, pushed in part by industry regulators, have already built large reserve pools of capital in the wake of the financial crisis.
“This should have been in place years ago. I’m not saying it would have stopped the crisis, but it would have helped to hold bank holding companies to the same standards,” said Paul Miller, bank analyst at FBR Capital Markets.
The FDIC is required to take the action under the Collins amendment in this year’s Dodd-Frank financial overhaul law.