Chart: Why Basel III Matters – Citigroup Inc. (C), JPMorgan Chase & Co. (JPM)

Source: Bank of America’s 2012 10-K, page 73.

Under the current regulatory scheme, known as “Basel I,” the nation’s second largest bank by assets is obligated to hold a minimum of $60 billion in Tier 1 common capital — this largely consists of common stock and retained earnings. As a result, B of A currently holds $73 billion more than is required. Under the new scheme, however, it’s required to hold $118 billion in Tier 1 common capital, leaving the bank with only $10 billion in excess reserves.

While this may seem academic, think about that for a second. We’re talking about a nearly twofold increase in capital, amounting to a staggering $58 billion. That’s a little over $5 a share for a bank that trades at roughly $12 a share today. In one fell swoop, moreover, B of A’s $73 billion capital cushion gets eviscerated, cut down to a comparatively paltry $10 billion.

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John Maxfield owns shares of Bank of America. The Motley Fool recommends Goldman Sachs and Wells Fargo. The Motley Fool owns shares of Bank of America, Citigroup, JPMorgan Chase, and Wells Fargo.

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