Fed wants more cap­i­tal held at largest US banks

The Myanmar Times - - International Business -

SHARES of the largest US banks fell on Septem­ber 26 af­ter the Fed­eral Re­serve’s main reg­u­la­tor pro­posed higher cap­i­tal re­quire­ments.

Stress tests for the banks – to see how they could ride out ex­treme crises – in­di­cated that the largest eight so-called global sys­tem­i­cally im­por­tant banks (GSIB) need firmer cap­i­tal buf­fers for sys­temic safety, Fed gover­nor Daniel Tarullo said in a speech.

The Fed would soon for­mally pro­pose a “stress cap­i­tal buf­fer ap­proach” to re­place a pre­vi­ous cap­i­tal strength sur­charge on large banks, he added.

“This would gen­er­ally re­sult in a sig­nif­i­cant in­crease in cap­i­tal re­quire­ments ap­pli­ca­ble to the GSIBs,” he said, adding that re­gional banks would see some terms in the stress tests eased.

The tougher stan­dard is based on the view that “fi­nan­cial reg­u­la­tion should be pro­gres­sively more strin­gent for firms of greater im­por­tance, and thus po­ten­tial risk, to the fi­nan­cial sys­tem,” he said.

“The sur­charges are cal­i­brated to force large banks to in­ter­nalise the ad­di­tional costs their dis­tress would im­pose on the sys­tem.”

The eight in­clude Bank of Amer­ica, Bank of New York Mel­lon, Cit­i­group, Goldman Sachs, JPMor­gan Chase, Morgan Stan­ley, State Street and Wells Fargo.

Shares for the group sank af­ter the speech. JPMor­gan lost 2.2 per­cent, Wells Fargo 1.9pc and Morgan Stan­ley 2.8pc.

The an­nual stress tests, im­ple­mented af­ter the 2008 cri­sis, are used to de­ter­mine if banks have ad­e­quate cap­i­tal to han­dle a deep re­ces­sion.

Banks that do not pass the tests can be de­nied per­mis­sion to dis­trib­ute prof­its to share­hold­ers.

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