U.S. regulators unveiled a sweeping overhaul Thursday that would direct banks to set aside billions more in capital to guard against risk, which was immediately slammed by the industry as “misguided.”
If fully implemented, the proposal would raise capital requirements for large banks by an aggregate 16 per cent from current levels, with the brunt felt by the largest and most complex firms, regulators said.
Current rules require banks to keep a certain amount of capital on hand as a percentage of how much they lend out. The idea is to restrain them from loaning out too much, and the ratios for U.S. lenders have not been raised in years.
The industry is already warning that such a big hike could force them to trim services, raise fees, or both.
U.S. officials argued Thursday that such costs would be more than offset by the benefit of a more resilient banking system.
The U.S. Federal Deposit Insurance Corporation bailed out numerous lenders and depositors this year that it was not obligated to do, and is now seeking to tighten regulations. (Peter Morgan/The Associated Press)
The proposal, approved by the Federal Deposit Insurance Corporation (FDIC) and set to be voted on by the Federal Reserve, marks the first in an extensive effort to tighten bank oversight, particularly in the wake of spring turmoil that saw three large financial firms fail.
However, the effort was not unanimous. Two Republican members of the FDIC voted against the proposal as misguided and onerous, and two Republican members of the Fed indicated in prepared remarks they would also oppose the package on similar grounds.
Fed chair Jerome Powell, a Republican who was renominated to the post by President Joe Biden, said in a prepared statement he supported advancing the proposal to receive public comment, but added regulators must strike a “difficult balance.”
“Congress and the American people rightly expect us to achieve an effective and efficient regulatory regime that keeps our financial system strong and protects our economy, while imposing no more burden than is necessary,” he said.
Basel regulations
The proposed rule, which would implement a 2017 agreement which originated via the Basel Committee on Banking Supervision, aims to overhaul how banks gauge their riskiness, and in turn how much reserves they must keep as a cushion against losses.
Fed Vice Chair for Supervision Michael Barr said the proposal better aligns capital requirements with risk, ensuring a more stable financial system.
The proposal would overhaul how banks must measure risk from lending, trading activities and internal operations. In several cases, the plan would scrap a prior reliance on bank internal models to measure various types of risk, instead opting for a standardized approach, which regulators argue would produce more consistent and comparable results.
WATCH | Why Silicon Valley Bank failed:
Why Silicon Valley Bank collapsed | About That
5 months ago
Duration 10:54
The sudden collapse of Silicon Valley Bank has rattled both U.S. and Canadian markets. About That producers Kieran Oudshoorn and Lauren Bird examine what led to the bank’s failure.
The proposal also reverses previous relief for banks with over $100 billion US in assets, after several mid-sized firms failed in the spring. Under the plan, banks of that size would have to account for unrealized gains and losses on some securities, as well as adhere to a stricter requirements as to how much leverage they can have.
The largest U.S. banks like JPMorgan, Citibank, Bank of America and others would see their capital requirements go up 19 per cent on average, while banks with $250 billion or more would go up an average of 10 per cent, and banks with $100 billion-$250 billion up an average of 5 per cent, in line with prior expectations.
Shares of major banks were flat or down on the news.
The Securities Industry and Financial Markets Association said a proposed operational risk capital charge would penalize firms that are involved in fee-based wealth management and investment banking activities.
“Imposing a punitive capital charge on businesses that provide steady fee income is misguided,” said SIFMA president and CEO Kenneth E. Bentsen, Jr in a statement.
FDIC chair Martin J. Gruenberg says capital ratio rules are in need of overhauling. (Evelyn Hockstein/Reuters)
The sweeping proposal, which spans over 1000 pages and asks for input on dozens of topics, will kick off an intense lobbying battle by the banking industry as firms seek to soften, delay, or otherwise derail the effort. Regulators said they will take public input on the proposal until November 30, and aim to have the requirements fully phased in by July 1, 2028.
Top officials at banks like JPMorgan Chase, Bank of America, and Morgan Stanley have warned stricter rules could force them to pull back from services or increase fees. Analysts say it could take years of retained earnings to comply, pinching their ability to boost dividends or buy back shares.
Agency officials said Thursday most banks already have enough capital to meet the proposal, and firms that need to catch up would need at most two years of retained earnings to do so.
TOKYO (AP) — Japanese technology group SoftBank swung back to profitability in the July-September quarter, boosted by positive results in its Vision Fund investments.
Tokyo-based SoftBank Group Corp. reported Tuesday a fiscal second quarter profit of nearly 1.18 trillion yen ($7.7 billion), compared with a 931 billion yen loss in the year-earlier period.
Quarterly sales edged up about 6% to nearly 1.77 trillion yen ($11.5 billion).
SoftBank credited income from royalties and licensing related to its holdings in Arm, a computer chip-designing company, whose business spans smartphones, data centers, networking equipment, automotive, consumer electronic devices, and AI applications.
The results were also helped by the absence of losses related to SoftBank’s investment in office-space sharing venture WeWork, which hit the previous fiscal year.
WeWork, which filed for Chapter 11 bankruptcy protection in 2023, emerged from Chapter 11 in June.
SoftBank has benefitted in recent months from rising share prices in some investment, such as U.S.-based e-commerce company Coupang, Chinese mobility provider DiDi Global and Bytedance, the Chinese developer of TikTok.
SoftBank’s financial results tend to swing wildly, partly because of its sprawling investment portfolio that includes search engine Yahoo, Chinese retailer Alibaba, and artificial intelligence company Nvidia.
SoftBank makes investments in a variety of companies that it groups together in a series of Vision Funds.
The company’s founder, Masayoshi Son, is a pioneer in technology investment in Japan. SoftBank Group does not give earnings forecasts.
Shopify Inc. executives brushed off concerns that incoming U.S. President Donald Trump will be a major detriment to many of the company’s merchants.
“There’s nothing in what we’ve heard from Trump, nor would there have been anything from (Democratic candidate) Kamala (Harris), which we think impacts the overall state of new business formation and entrepreneurship,” Shopify’s chief financial officer Jeff Hoffmeister told analysts on a call Tuesday.
“We still feel really good about all the merchants out there, all the entrepreneurs that want to start new businesses and that’s obviously not going to change with the administration.”
Hoffmeister’s comments come a week after Trump, a Republican businessman, trounced Harris in an election that will soon return him to the Oval Office.
On the campaign trail, he threatened to impose tariffs of 60 per cent on imports from China and roughly 10 per cent to 20 per cent on goods from all other countries.
If the president-elect makes good on the promise, many worry the cost of operating will soar for companies, including customers of Shopify, which sells e-commerce software to small businesses but also brands as big as Kylie Cosmetics and Victoria’s Secret.
These merchants may feel they have no choice but to pass on the increases to customers, perhaps sparking more inflation.
If Trump’s tariffs do come to fruition, Shopify’s president Harley Finkelstein pointed out China is “not a huge area” for Shopify.
However, “we can’t anticipate what every presidential administration is going to do,” he cautioned.
He likened the uncertainty facing the business community to the COVID-19 pandemic where Shopify had to help companies migrate online.
“Our job is no matter what comes the way of our merchants, we provide them with tools and service and support for them to navigate it really well,” he said.
Finkelstein was questioned about the forthcoming U.S. leadership change on a call meant to delve into Shopify’s latest earnings, which sent shares soaring 27 per cent to $158.63 shortly after Tuesday’s market open.
The Ottawa-based company, which keeps its books in U.S. dollars, reported US$828 million in net income for its third quarter, up from US$718 million in the same quarter last year, as its revenue rose 26 per cent.
Revenue for the period ended Sept. 30 totalled US$2.16 billion, up from US$1.71 billion a year earlier.
Subscription solutions revenue reached US$610 million, up from US$486 million in the same quarter last year.
Merchant solutions revenue amounted to US$1.55 billion, up from US$1.23 billion.
Shopify’s net income excluding the impact of equity investments totalled US$344 million for the quarter, up from US$173 million in the same quarter last year.
Daniel Chan, a TD Cowen analyst, said the results show Shopify has a leadership position in the e-commerce world and “a continued ability to gain market share.”
In its outlook for its fourth quarter of 2024, the company said it expects revenue to grow at a mid-to-high-twenties percentage rate on a year-over-year basis.
“Q4 guidance suggests Shopify will finish the year strong, with better-than-expected revenue growth and operating margin,” Chan pointed out in a note to investors.
This report by The Canadian Press was first published Nov. 12, 2024.
TORONTO – RioCan Real Estate Investment Trust says it has cut almost 10 per cent of its staff as it deals with a slowdown in the condo market and overall pushes for greater efficiency.
The company says the cuts, which amount to around 60 employees based on its last annual filing, will mean about $9 million in restructuring charges and should translate to about $8 million in annualized cash savings.
The job cuts come as RioCan and others scale back condo development plans as the market softens, but chief executive Jonathan Gitlin says the reductions were from a companywide efficiency effort.
RioCan says it doesn’t plan to start any new construction of mixed-use properties this year and well into 2025 as it adjusts to the shifting market demand.
The company reported a net income of $96.9 million in the third quarter, up from a loss of $73.5 million last year, as it saw a $159 million boost from a favourable change in the fair value of investment properties.
RioCan reported what it says is a record-breaking 97.8 per cent occupancy rate in the quarter including retail committed occupancy of 98.6 per cent.
This report by The Canadian Press was first published Nov. 12, 2024.
