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Big banks to increase extra capital by $68 billion, will make them safer says Jeff Saut

Kevin Chupka
Executive Producer/Writer

Thanks to new rules from U.S. regulators America’s eight largest banks must increase their leverage ratio to 5% from 3%, or about $68 billion dollars collectively. The aim of the new regulations is to force banks to be less reliant on debt, thus helping to prevent another financial meltdown.

According to officials most of the banks impacted are on schedule to comply with the new rules that go into effect at the end of 2017.

Many in the banking industry are crying foul citing that other banks around the world are not held to such strict standards. The Financial Services Roundtable, an American banking advocacy group, released a statement that said in part:

“This rule puts American financial institutions at a clear disadvantage against overseas competitors,” said Tim Pawlenty, FSR CEO. “It is disappointing this proposal wasn’t further examined by economic experts and will likely result in tighter access to loans for businesses across the country.” FSR had urged regulators to adhere to the leverage ratios agreed to under the Basel III international standards. The finalization by the Federal Reserve, Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency today means banks will be required to apply a much higher 5 percent ratio to their holding companies and a 6 percent ratio for their FDIC subsidiaries.

Jeff Saut of Raymond James weighed in on Breakout this morning. He noted that regulators “always fight the last wars” and that these new rules, in addition to everything else that has gone on in the financial sector since the collapse has led to a safe banking system.

“I actually think the big banks are going to shrink themselves,” he says. “They’ve been regulated out of a lot of their profitable businesses and [they] realize what units are really worth and they’re in businesses they don’t really need.”

On top of that Saut notes that the economy and employment are strengthening enough to quell fears of any new bank failings. He went as far as to say, from an investment standpoint, he likes the sector as a whole. “I like the financials in aggregate,” he told Breakout’s Jeff Macke. “The financials are the cheapest group out there.”

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