JPMorgan Chase & Co. (JPM), PNC Financial Services (PNC) & Stringent Capital Requirements for Too Big to Fail

PNC Financial Services (NYSE:PNC)

At the end of the first quarter of the current year, PNC Financial Services (NYSE:PNC) had $301 billion worth of assets under its management. This is below the $500 billion threshold. Therefore, according to the new regulations, PNC Financial Services (NYSE:PNC) would be required to hold 8% of capital relative to its assets. However, if the assets swell above $500, the bank would be required to hold at least 15% as capital. This is a significant jump, which would hinder growth at PNC Financial Services (NYSE:PNC). The bank currently estimates its Basel III Tier 1 common ratio at 7.9%, just marginally below the new proposed regulation’s minimum requirement.

Regions Financial Corporation (NYSE:RF)

The case is similar for Regions Financial Corporation (NYSE:RF), as it holds $121 billion worth of assets at the end of the first quarter. Regions reported a 15% earnings beat when it reported its first quarter results. The latest results were positively impacted by a 4 bps hike in the net interest margin and an 8% decline in the operating expenses, partially offset by 4% decline in the fee based income.

Conclusion

While there is consensus that banks need to be made more stable to survive another crisis on their own, I believe the new stringent regulations will hinder growth in the US banking sector. While the large banks may only experience a slowdown in lending, their smaller counterparts will end up as the biggest losers.

The article Stringent Capital Requirements for Too Big to Fail originally appeared on Fool.com and is written by Adnan Khan.

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