BNY Mellon and State Street Need More Capital, says Moodys

BNY Mellon and State Street are lagging behind other U.S. banks in meeting new capital requirements, according to new research from Moody’s Investor Services.

Based on the bank’s second quarter balance sheets, both BNY Mellon and State Street’s supplementary leverage ratio (SLR) was 4.6% and 5.1% respectively; below the 6% minimum U.S. banks must meet from 2018.

“In large part, this compliance challenge for BNY Mellon and State Street is due primarily to elevated deposit levels because of low interest rates and to the high levels of liquidity deployed by central banks worldwide,” says Allen Tischler, a Moody’s senior vice president.

“When rates rise, both banks expect significant deposit runoff, which will shrink their balance sheets and help them comply with the SLR.”

The research also states that if global interest rates do not begin to rise in the next 12 to 18 months, both custodian banks will need to retain significantly more capital to comply with the SLR rules, and possibly manage their balance sheets more aggressively.

This could mean an even stricter review over certain businesses such as securities lending and prime brokerage.