Monday, July 08, 2013 5:55 pm
Regulators proposing stricter rule for 8 big banks
By MARCY GORDONAP Business Writer
The Federal Reserve, the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency are expected to propose Tuesday that banks increase their ratio of equity to loans and other assets from 3 percent to 5 or 6 percent.
Equity includes money banks receive when they issue stock, as well as profits they have retained.
The rule would apply to eight U.S. banks that are considered so big and interconnected that each could threaten the global financial system: Goldman Sachs, Citigroup, Bank of America, JPMorgan Chase, Wells Fargo, Morgan Stanley, Bank of New York Mellon and State Street Bank.
The move follows action the Fed took last week to increase the capital large banks must hold as a cushion against risk. Other regulators are also expected to adopt that rule. It would require the banks to maintain high-quality capital equal to 4.5 percent of their loans and other assets.
The higher capital requirements were mandated by Congress in the financial overhaul law. They also meet international standards agreed to after the financial crisis.
Daniel Tarullo, a Fed governor, said last week that the regulators plan to apply four new rules to the eight big U.S. banks, starting with the higher equity ratios. The goal is for the banks to build buffers strong enough to withstand financial stress and avoid another crisis in which taxpayers would have to bail them out. Many critics worry that the largest banks still represent a danger to the financial system.
Hundreds of U.S. banks received bailouts during the 2008 financial crisis, which intensified the worst economic downturn since the Great Depression. The biggest banks were among the beneficiaries.
The banking industry has been steadily recovering. Overall profits have been rising, and banks have begun lending more freely.
Banks have lobbied to ease the requirements for higher capital, which they say could hamper their ability to lend. Experts say most big banks have already increased their capital reserves.