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Cowen sees big banks' capital requirements rising if Biden wins

  • Expect big bank capital requirements to tighten if Joe Biden wins the presidency, but don't expect a radical departure from the existing regime, writes Jaret Selberg of Cowen Washington Research Group.
  • Specifically, he expects the adoption of a countercyclical capital buffer that would require an extra 100 to 200 basis points of capital, which would be "turned on when the economy is growing and turned off during downturns," Selberg writes in a note. "It would differ from the current CCyB as it would not be tied to whether systemic risk is rising."
  • Also sees tougher CCAR stress tests and changes that would boost required capital, such as requiring the prefunding of eight quarters of expected dividends.
  • Changes, though, wouldn't be immediate as the terms of Fed Vice Chairman Randal Quarles (October 2021) and Chairman Jerome Powell (February 2022) would have to expire before such proposals could advance.
  • If President Trump wins re-election, "we do not expect any increases in big bank capital levels. Instead, we expect the Federal Reserve to complete the transition to the Stress Capital Buffer as the way to determine what level of distributions are permitted."
  • The Fed could still adopt the countercyclical capital buffer under a second Trump term, but that would likely be offset by capital reductions elsewhere, Selberg said.
  • Related tickers: BAC, C, GS, JPM, MS, WFC.

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