U.S. bank stocks fall after Treasury debt issuance, proposed new capital requirements

By Chibuike Oguh

NEW YORK (Reuters) – Shares of U.S. banks fell on Monday as some investors worried that a flood of Treasury bill issues following the raising of the U.S. debt ceiling could deplete lenders’ liquidity.

The US government should issue $1 trillion or more in short-term debt to replenish its Treasury General Account (TGA) or cash reserves that have been depleted during political haggling over the debt ceiling.

Some analysts have warned that this flood of new banknotes could deplete banks’ reserves at a time when cash is needed to bolster their balance sheets given the recent shocks to the financial system from the regional banking crisis.

Most major bank stocks were trading lower in the afternoon, with the S&P 500 banking index down nearly 1% on Monday. JPMorgan Chase & Co, Wells Fargo & Co, Goldman Sachs Group Inc, Morgan Stanley, Citigroup and Bank of America Corp fell between 0.3% and 2%.

“There is a lot of concern that now that the debt deal has been done, a lot of people are talking about a potential cash drain because the general treasury account needs to be replenished,” Jack said. Janasiewicz, portfolio manager at Natixis Investment Managers, adding that such concerns may be overblown given that money market funds have enough liquidity to absorb huge debt issuances by the Treasury.

U.S. regulators, led by the Federal Reserve, are also expected to propose this month to raise banks’ average capital requirements by up to 20%, a person familiar with the matter told Reuters. The Wall Street Journal first reported the story.

The regulations are expected to be a final batch of global bank capital rules established by the Basel Committee of Banking Regulators that are expected to come into effect in early 2025, according to the report.

Shares of regional banks also posted wide declines on Monday, with the KBW Regional Banking Index losing 2%. PacWest Bancorp lost 2.1%, Western Alliance fell 2.3% and Comerica Inc.

The looming international capital rules come amid a broader Fed review of lender capital requirements. “It’s not shocking that you should expect to see some capital requirements increase and a bit more oversight is expected given what’s happened with regional banks,” Janasiewicz said. (This story has been reclassified to change the title of portfolio manager in paragraph 5)

(Reporting by Chibuike Oguh in New York; additional reporting by Manya Saini; Editing by Michelle Price, Lance Tupper and Aurora Ellis)

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