By Marcy Gordon, AP
WASHINGTON–Federal regulators are proposing that the eight biggest U.S. banks be required to further increase the amount of capital they set aside to cushion against unexpected losses.
The Federal Reserve’s proposal is aimed at reducing the potential for future taxpayer bailouts of troubled banks. The proposed requirements also are designed to encourage the behemoths to shrink so they pose less risk to the financial system. The banks include JPMorgan Chase, Citigroup and Bank of America.
The Fed governors voted 5-0 at a meeting Tuesday to advance the so-called ��capital surcharges,�� opening them to public comment through Feb. 28. The extra capital requirements would increase in proportion to how risky the regulators deem a bank to be. A key risk factor would be how much a bank relies on short-term funding markets to borrow from other banks. Those markets seized up during the financial crisis.
The requirements would give the banks an incentive to shed businesses and downsize to avoid having to set aside more capital.
The requirements would be phased in from 2016 through 2018. Fed officials said nearly all eight banks already meet the stricter capital requirements, and that all of them are ��on their way�� to meeting them by the Jan. 1, 2019 deadline for full implementation.
Fed Vice Chair Stanley Fischer said at the meeting that JPMorgan, the biggest U.S. bank by assets, is the only one of the group that doesn’t already meet the proposed requirements. The bank would have to raise about US$21 billion in capital by the 2019 deadline, he noted. JPMorgan has previously said it wouldn’t increase its capital to levels exceeding current requirements until regulators had made their new plans clear.
��While we’re still reviewing the Fed’s proposal, we are well capitalized and intend to meet their requirements and timeframes while continuing to deliver strong returns for our shareholders,�� JPMorgan spokesman Andrew Gray said.
The eight banks, considered so big and interconnected that each could threaten the financial system if they collapsed, also include Goldman Sachs, Wells Fargo, Morgan Stanley, Bank of New York Mellon and State Street Bank.
The stricter requirements ��would encourage such firms to reduce their systemic footprint and lessen the threat that their failure could pose to overall financial stability,�� Fed Chair Janet Yellen said at the meeting.
The importance of banks’ reliance on short-term funding markets as a risk factor could mean larger required capital increases for investment banks in the group like Goldman Sachs and Morgan Stanley. Investment banks tend to use the wholesale funding markets more than commercial banks, which tend to rely more on deposits.
Stricter capital requirements for banks were mandated by Congress after the financial crisis, which struck in 2008 and ignited the worst economic downturn since the Great Depression. Hundreds of U.S. banks received taxpayer bailouts during the crisis, including the eight Wall Street mega-banks that would be subject to the additional layer of capital requirements under the Fed’s proposal.