New US Banking Rules Incoming

As reported by Bloomberg, the proposed changes by the regulators include:

1. Stress tests of banks will be enhanced with multiple scenarios to uncover a variety of channels of contagion

2. “Long-term debt requirement” for non-systemically important big banks to ensure sufficient cushion of loss-absorbing resources

3. Liquidity rules to improve resiliency of the banks’ balance sheet

4. Changes to FDIC’s coverage (currently capped at US$ 250,000)

5. Capital requirements for the securities portfolios of banks with assets over US$100 billion

In my opinion, the concentration risk of banks needs to be managed as well, as we’ve seen SVB collapse stemming from their concentration in the tech startup niche. Exposure to large deposits that could “fly to safety” at the slightest hint of trouble will never be a good idea for a bank, hence diversification of the customer base to more widespread retail customers or industries will help in reducing the concentration risk.

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