United States sets capital surcharges for largest 8 banks, Banking & Finance

The Federal Reserve announced rules Monday on banks deemed to be Global Systemically Important Financial Banks, or G-SIBs. The other seven firms must maintain an additional capital buffer of between 1% and 3.5%.

Officials of New York-based JPMorgan have said the bank will do whatever is needed to meet the capital requirements.

“The surcharge gives big banks a choice”, Dow Jones said.

The Fed Board of Governors is slated to formally adopt the final rule at an open meeting this afternoon. “Either outcome would enhance financial stability”.

All the firms were on their way to meet the surcharges over the three-year period during which they will need to implement the measure, the Fed said. In recognition of GE Capital’s efforts to shrink, the Fed said it would roll out its set of standards in two phases. The new surcharge requirement comes on top of a base 7% common-equity capital requirement that most banks face. It requires the firms to hold more capital than their smaller peers to better protect them-and the economy as a whole-against big losses. 2%; State Street Corp. Lehman’s leverage ratio, the ratio of outstanding debt to capital, was about 30-to-1 when it collapsed, roughly twice that allowed for commercial banks at the time. The Fed said it expects all eight banks on the list to meet their surcharge requirement by 2019. though JPMorgan Chase, the biggest US bank, faces a $12.5 billion shortfall.

The Fed said in December it was looking into factoring surcharges into the tests, though that would require a separate rule.

Under the final rule, the Fed will determine each bank’s riskiness by comparing it to a fixed baseline: Global statistics on the banking sector from 2012 and 2013.

The inherent ultimatum of the rule: banks can either pony up the additional capital, or reduce the financial burden by reducing their size, complexity, risk profile, or reliance on short-term borrowing.

Because they’re determined by data that will change over time, actual rates and amounts may be different, the Fed said.

The Fed hasn’t decided whether to include the surcharges to the stress tests given to the largest US bank’s each year to determine how well the banks will fare in the event of another sharp economic downturn. “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 plan to sell assets.

The Wall Street Journal reported in late February that J.P. Morgan would begin charging large institutional customers fees for certain deposits, known as nonoperational, citing new rules that make holding money for clients too costly, including the pending capital surcharge.

GE is selling about $200 billion of assets as it reduces the size of the finance business and refocuses on manufacturing units making heavy-duty products such as gas turbines, jet engines and medical scanners. The bank has also been exiting businesses that are too risky or don’t bring in enough money.

Still, in 2014 the bank stopped operating about a dozen businesses, including physical commodities and student-lending origination.