Much of the damage came due to the interconnectivity of big banks as well as the damage they would cause should one fail.
The moves reinforce the central mandate of the Dodd-Frank financial overhaul law signed by President Barack Obama five years ago. Or, they can reduce the size of this new surcharge by shrinking or making other changes such as cutting their reliance on short-term funding sources that can be volatile. But banks continued to grumble that the surcharge was an unfair burden on their business.
The Federal Reserve will meet on Monday to adopt a new rule for the eight largest US banks to hold more equity capital, amid fears on Wall Street that the measure may make it less profitable.
Stricter capital requirements for banks were mandated by Congress after the financial crisis, which struck in the fall of 2008 and ignited the worst economic downturn since the Great Depression.
As an alternative, the banks could shrink in size to minimize the fallout of their potential failure on the financial system.
These kinds of restrictions on banks have prompted worries about unintended consequences, such as volatility in financial markets that some ascribe to banks being less willing to take on risk.
In this Monday, July 13, 2015 photo, pedestrians pass a Chase Bank office tower in New York’s financial center.
The systemic-risk council is a group of regulators led by Treasury Secretary Jacob J.
Unclear is how far regulators intend to push the biggest banks. In recognition of GE Capital’s efforts to shrink, the Fed said it would roll out its set of standards in two phases. The numbers were in line with an estimate by Goldman Sachs analysts in December. That would give GE Capital time to carry out its plan of selling off the majority of its assets. “That is what we’re going to continue to do”.
Andrew Gray, a JPMorgan spokesman, said the company was still reviewing the rule and didn’t yet have a comment.
Still, in 2014 the bank stopped operating about a dozen businesses, including physical commodities and student-lending origination.
The agency made some changes the lenders had asked for. Retail deposits weren’t affected.
The new Fed rule identifies United States bank holding companies that are globally systemically important and imposes a risk-based capital surcharge, which could range from 1 to 4.5% of a firm’s total risk-weighted assets.
The Fed said in December it was looking into factoring surcharges into the tests, though that would require a separate rule. “If anything, we’re capital heavy”.
“A key objective of the capital surcharge is to require the firms themselves to bear the costs that their failure would impose on others”, Fed Chairwoman Janet Yellen said in a statement. All told, the banks will need to hold roughly $200 billion in additional capital to comply with the new requirement.
That label of a “systemically important” nonbank financial company meant that GE Capital had to increase its capital cushion, limit its use of borrowed money and submit to inspections by examiners. GE said Monday it was “grateful” for the Fed’s action.