New Fed rule tells United States banks to bump up capital

The rule was largely similar to when it was proposed in December, when the USA central bank said the banks would face a surcharge of between 1 percent and 4.5 percent of their assets.

The Federal Reserve will meet on Monday to adopt a new rule for the eight largest USA banks to hold more equity capital, amid fears on Wall Street that the measure may make it less profitable.

The rule subjects United States firms to capital requirements stricter than those faced by their peers overseas – in some cases nearly twice the extra capital demand faced by foreign competitors. “Today our capital and liquidity levels are above the regulatory minimums and we are fully prepared to meet the applicable standards as we execute the exit plan”.

He also emphasized that the Fed had gone beyond the requirements of the Basel Committee on Banking Supervision, the Swiss-based body that coordinates worldwide banking regulation, by making a bank’s reliance on short-term securities for funding a key component in determining the amount of the surcharge. In December, Fed governor Stanley Fischer, in an apparent slip, disclosed that J.P. Morgan was about $21 billion short.

The New York branch of China Construction Bank has mainly focused on offering trade financing for Chinese companies. GE Capital Corp. was labeled two years ago as a potential threat to the financial system by a special council of regulators. The company, based in Norwalk, Connecticut, issues a range of loans for consumers and companies.

The Fed rules for GE Capital would be phased in over more than two years. Lew that can designate non-bank financial companies for Fed oversight. The Fed said it expects all eight banks on the list to meet their surcharge requirement by 2019. though JPMorgan Chase, the biggest USA bank, faces a $12.5 billion shortfall. That move helped drive some of that business away from the bank, and J.P. Morgan Chief Financial Officer Marianne Lake said last week on an earnings call with analysts that the largest US bank by assets had surpassed its goal of reducing $100 billion in so-called operational deposits by the end of 2015. “Either outcome would enhance financial stability”.

But the act now belongs to history and to the regulators charged with enforcing it, and it is the action by Tarullo and the Fed to push banks to downsize that is the most fitting way to honor Dodd-Frank.

The big banks – including JPMorgan Chase, Citigroup, Bank of America and Goldman Sachs – don’t like the new rule, but they have already responded to the pending changes by raising capital and jettisoning less profitable operations to reduce capital requirements.

Lehman Brothers collapsed in September 2008, triggering the worst effects of the crisis.