Dive Brief:

• An increase in bank capital requirements would hamper Bank of America’s lending activity, CEO Brian Moynihan said Wednesday.
• There is a “countervailing effect” on lending every time bank capital buffers are increased, Moynihan said at the Bloomberg Invest conference in New York.  
• “It’s fairly straightforward. If our capital ratios go up by 100 basis points, simply put, we can’t make about $150 billion of loans,” he said, when asked how reports of an average 20% increase in capital requirements would affect the Charlotte, North Carolina-based bank.

Dive Insight:

Banks have been bracing, over the past several years, for tighter regulations regarding the size of the capital buffers they are required to maintain to guard against an economic downturn.

Regulators in September reaffirmed their commitment to rolling out the final implementation of Basel III — a set of international regulatory standards created in the wake of the 2007-08 financial crisis — "as soon as possible."

Regulators could unveil as early as this month a proposal to increase bank capital requirements by as much as 20% for institutions with at least $100 billion in assets, The Wall Street Journal reported this week, citing sources familiar with the matter.

The asset threshold represents a significant drop from the current $250 billion.

When asked about how the change would affect Bank of America’s lending, Moynihan said it’s a misunderstanding that more capital would allow the bank to make more loans. 

“People say, well, if you have more capital you can make more loans. But if we took risk on that capital, we wouldn’t have that capital ratio. It has to be a riskless build of capital,” Moynihan said. “The only thing you can do is leave it in cash or buy Treasury securities, and that’s not a very productive use of money.”

Moynihan’s comments come as executives of the nation’s largest banks say they are preparing for the stricter requirements.

JPMorgan Chase CFO Jeremy Barnum said last month his bank was expecting the proposals on implementing new Basel standards “any day now,” according to Bloomberg. Barnum said the bank would push back on calls for more capital but was preparing for the increase, the wire service reported.

Citi CEO Jane Fraser said her bank was putting anything beyond modest buybacks on hold until more clarity on the Basel changes and the Federal Reserve’s separate “holistic” review of capital requirements emerged, Bloomberg reported.