WILL REGULATORY PRESSURE LET UP IN 2016?

The IFR has published a piece in this week's edition asking if regulatory pressure upon banks might lighten up in 2016.  At least for large banks, the IFR and others ponder that 2016 will not see a reduction in such pressures.  For example, it cites recent speeches by Fed Governor Tarullo that the regulator will include a further capital surcharge for the eight US SIBs.  A related tool is also expectations of a tougher stress test or CCAR which is a primary tool to measure exposure to systemic risk.  The extra capital buffers could be added for the 2017 CCAR exercise, for example. Such a decision would drive a further round of new capital raising by banks to meet these new standards. On Mr Tarullo's speech dated November 5th 2015 in Chicago specifically leaves open the prospect of surcharges for significant banks. Beyond raising new capital, observers expect other options to include a series of changes to boost returns and ROE, including reducing FICC, reducing geographic footprints, exiting capital intensive businesses, and a faster wind-down of legacy books. 

The IFR adds one good piece of news for banks is the recent hike with each 25bps higher adds about $19 billion in new revenue to US lenders as a group.