US Fed raps China Construction Bank over money laundering

Federal regulators are directing the eight biggest banks in the United States to hold capital at levels above industry requirements to cushion against unexpected losses and reduce the chances of future taxpayer bailouts. All told, the banks will need to hold roughly $200 billion in additional capital to comply with the new requirement. It was reported that most of the banks have already put away the additional capital. In keeping with the spirit of that legislation, Fed officials say the capital requirement is designed to encourage the biggest banks to shrink and take other steps to reduce the threat their potential failure poses to the financial system.

The rule was largely similar to when it was proposed in December, when the US central bank said the banks would face a surcharge of between 1 percent and 4.5 percent of their assets. The extra capital requirements will increase in proportion to how risky the Federal Reserve believes a particular bank to be to the financial system.

They also want to discourage banks from relying on unstable short-term borrowing, a key contributing factor to the demise of Lehman Brothers at the height of the financial crisis in 2008.

It was Tarullo who pushed through the capital surcharge for megabanks as the way to partially fulfill the Dodd-Frank mandate for enhanced prudential requirements for banks and other financial institutions whose failure would endanger the entire financial system. The company came under the Fed’s supervision. The company, based in Norwalk, Connecticut, issues a range of loans for consumers and companies.

The Federal Reserve Board of Governors voted Monday for a two-stage plan for supervising GE Capital to allow for the possibility that it might go through with its plan, announced in April, to significantly shrink itself and thereby shed its “systemically important” label. That would give GE Capital time to carry out its plan of selling off the majority of its assets.

In July, 2014, BNP Paribas (BNPP.PA) pleaded guilty to two criminal charges and agreed to pay nearly $9 billion (5.8 billion pounds) to resolve accusations it violated US sanctions against countries such as Sudan, Cuba and Iran.

If GE Capital is successful in getting the Financial Stability Oversight Council to reverse its decision to name the firm systemically important, it would never face the added regulations. If that happens, the Fed’s action will be cancelled.

The new method “calibrates surcharge levels so that they will generally be higher than those required by the Basel method, and meaningfully higher for some of the firms”, he said.

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