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The biggest U.S. banks have boosted key capital ratios in the third quarter and are on track to comply with strict new international requirements by later this decade, Fitch Ratings said Friday.
The new rules, known as Basel III, generally require banks to hold more cash and other safe assets as a cushion against unexpected losses. The Federal Reserve, which oversees the biggest banks, sees the new rules as a key step in preventing another financial crisis.
Banks have been selling off assets that are considered risky, boosting the ratios that regulators look at to assess their financial strength, Fitch said. Banks have improved their financial stability "in the face of earnings headwinds" that could prevent their share prices from rising in future quarters, it said.
Bank of America was the best performer, improving its key capital ratio under Basel III rules by more than 1 percent, to 8.97 percent, Fitch said. To do so, Bank of America reduced riskier securities held in its portfolio. Loans on its books appeared more likely to be repaid, as well. Those changes reduced its total assets deemed risky under Basel III by $70 billion in the third quarter, Fitch said.
JPMorgan Chase improved the same ratio by a half-percentage point, reducing its riskier assets by $21 billion. Citigroup's ratio improved by .66 percent as the bank's Citi Holdings unit reduced higher-risk investments by $28 billion.
Wells Fargo's ratio improved by .24 percent, Fitch said. Goldman Sachs and Morgan Stanley also reported improvement, it said.
Similar changes are afoot in Europe, where banks have raised an extra $265 billion in fresh capital so far this year in preparation for the new rules.
And Canadian banks also are on track to meet the requirements, with enough cash left over to raise their dividends, TD Bank chief economist Craig Alexander said in August.
U.S. banks have lobbied vigorously against new capital requirements proposed by the Federal Reserve in conjunction with the Basel changes. They say setting aside so much money in reserve could reduce their ability to lend.
Experts say most big banks already have increased their capital levels close to the stricter levels.
Fed Gov. Daniel Tarullo told lawmakers this summer that JPMorgan Chase's $2 billion-plus trading loss is a good example of why the rules are needed. He said JPMorgan was able to weather the loss because it had sufficient reserves.
"A bank with a strong capital position can absorb losses from unexpected sources," Tarullo said at a June Fed meeting.