Senate Bill Requires Higher Capital Ratio

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Under a proposal from two United States senators, the largest US banks would be required to hold far more capital as compared to international bank capital regulations. The draft bill obtained by Reuters would mean throwing out the Basel III capital regulations and would instead require equity capital ratios of no less than ten percent of its total assets.

The biggest banks or banks that have more than US$400 billion in total assets would be required to pay another capital surcharge. The proposal was made by David Vitter (R-La.) and Sherrod Brown (D-Oh.). This is but another reaction to the 'too-big-to-fail' bank argument that has again surfaced in Washington. The clamor was to have politicians and regulators to do more in protecting taxpayers from being required to pay for bailouts when a bank goes bankrupt.

According to Sen Brown, "If you thought the biggest megabanks were too big to fail before the crisis, then I have bad news for you, they have only gotten bigger."

The Basel capital agreement also requires banks to retain higher capital ratios but the levels are deteremined as to the risk of the retained assets, allowing greater leeway compared to the proposed legislation.

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