The eight largest U.S. Banks must set aside billions of dollars more in cash reserves if they want to avoid restrictions on bonuses and dividend payments.

The Federal Reserve Board, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency have adopted a final rule that strengthens leverage ratio standards for the largest, most interconnected U.S. banks. The rule applies to bank holding companies (BHCs) with more than $700 billion in consolidated total assets, or more than $10 trillion in assets under custody.  Covered BHCs must maintain a leverage buffer greater than 2 percentage points above the minimum supplementary leverage ratio requirement of 3 percent, for a total of more than 5 percent, to avoid restrictions on capital distributions and discretionary bonus payments.

FDIC insured subsidiaries of these banks must maintain at least a 6 percent supplementary leverage ratio to be considered "well capitalized" under the new framework. The final rule, effective on Jan. 1, 2018, is substantively the same as a rule first proposed by the regulators in 2013. It is estimated that an additional $68 billion will be raised by covered banks to meet the new threshold.

The rule comes amid an international push, through the Basel III accord, to require banks to have a greater buffer of safe capital, such as shareholder equity and customer deposits, rather than riskier holdings tied to debt. The push for tougher standards in the U.S., however, has led banks and their trade associations to fear that domestic standards will put them at a competitive disadvantage globally.

In a statement, the bank regulators stressed that maintaining a strong base of capital is particularly important for large because shortfalls at these institutions have the potential to result in “systemic distress on both a domestic and an international scale.” “Higher capital standards for these institutions place additional private capital at risk before the federal deposit insurance fund and the federal government's resolution mechanisms would be called upon,” they wrote.

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