Banks with at least $100 billion in assets may have to comply with the new requirement. Large US banks could face a 20% increase in their capital needs.

The revised requirements could be proposed as early as June and depend on the primary activities of the banks. Institutions with large commercial businesses would be most affected, while those heavily reliant on fee income could also face significant increases.

Michel Barr, the Federal Reserve’s vice chairman for supervision, previously stated that US officials were reevaluating the capital requirements for banks, and they are committed to implementing restrictions in line with the global Basel III standards. Barr, who took over as the Fed’s top bank watchdog in July 2022 and was an architect of the 2010 Dodd-Frank Act, also indicated that he supports stricter restrictions for large systemically essential lenders than for small institutions.

The Fed plays a leading role in shaping the measure, alongside the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency. The three agencies are expected to seek comments on the proposed capital rules before voting to implement them in the coming years.

Such a change will undoubtedly have implications for interest rate developments. It could lead to tightening short-term liquidity and an actual increase in short-term rates. This could also have a positive impact on the dollar. A tightening of liquidity could also impact the economic outlook and push the US economy toward a recession. Such a scenario could see the Fed change its stance and lower rates in the second half 2024. These regulatory changes provide further arguments for a pause in US rate hikes for the next twelve months..