Major United States banks, leading financial institutions that provide a broad array of services including commercial and investment banking, could collectively release an estimated $320 billion in capital. This significant financial boost is projected by Morgan Stanley analysts, following revised draft rules recently unveiled by federal regulators. The softened regulations could free up billions of dollars for these institutions, enabling increased lending, shareholder dividends, and share buybacks, surpassing the current excess capital of $266 billion by 20%.
Last month, the Federal Reserve indicated that capital levels at large US banks would decline by between 4.8% and 7.8% following adjustments to “Basel” and “GSIB surcharge” rules. While the exact amount of capital ultimately released remains uncertain, analysts from Morgan Stanley believe clarity on these capital rules is a key catalyst for the banking sector. JPMorgan CEO Jamie Dimon noted in a recent letter to shareholders that his firm could see approximately $40 billion in excess capital become available, though he described the draft rules as “flawed.”
Morgan Stanley expects banks to start providing preliminary ranges of their potential capital release during first-quarter earnings calls. Although some analysts anticipate implementation next year, Morgan Stanley suggests the changes could be finalised by the third quarter of this year. Banks are presently reviewing the proposals. Regional banks are identified as major beneficiaries from the changes in risk-weighted asset calculations, primarily due to a reduction in the risk attributed to credit. Additionally, Goldman Sachs and Citigroup are expected to be key winners from a reduced surcharge for globally systemically important banks.
