US Regulators Orders Banks To Raise $68 Billion In Additional Capital

The eight largest banks in the U.S. must increase their capital levels by at least $68 billion from 2018 onwards, said federal regulators on Tuesday, in order to meet new rules designed to lessen the risk of a financial collapse.

According to Reuters, the Federal Deposit Insurance Corp. and the Treasury’s Office of the Comptroller of the Currency had voted to require those banks to raise their minimum ratio of capital to loans from 3 percent to 5 percent.

The eight largest banks in the U.S. must increase their capital levels by at least $68 billion from 2018 onwards, said federal regulators on Tuesday, in order to meet new rules designed to lessen the risk of a financial collapse.

According to Reuters, the Federal Deposit Insurance Corp. and the Treasury’s Office of the Comptroller of the Currency had voted to require those banks to raise their minimum ratio of capital to loans from 3 percent to 5 percent.

By 2018, banks must also rely more on funding sources such as shareholder equity, rather than borrowing money.

The U.S. Federal Reserve specifically cited “too big to fail” as one of the reason it thought the largest banks should be required to hold more capital. These banks were Goldman Sachs, Citigroup, Bank of America, JPMorgan Chase, Wells Fargo, Morgan Stanley, Bank of New York Mellon and State Street Bank.

[quote]”The final rule is an important part of the board’s package of enhanced prudential standards for the most systemic U.S. banking firms—a package that is designed to materially reduce the probability of failure of these firms and to materially reduce the damage that would be done to our financial system if one of these firms were to fail,” Fed Chairwoman Janet Yellen said.[/quote]

Citigroup, State Street and Bank of America issued statements on Tuesday claiming that they had already met the 5 percent minimum. Goldman Sachs said it met the minimum “approximately,” while J.P. Morgan Chase, Morgan Stanley and Bank of New York Mellon have said they expect to meet the ratio in the future. Wells Fargo said it doesn’t disclose its ratios, but analysts too believe that it currently meets the requirements.

Proponents say the new rules will make banks more able to lend in any economic environment and will make U.S. banks stronger and more competitive.

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“While we can’t entirely prevent future disruptions, we can preserve confidence in the financial system by ensuring that our large banks are well-capitalized,” said Comptroller of the Currency Thomas Curry, as cited by the Wall Street Journal            .

 “This rule is an important step in that direction, and it will go a long way toward helping us weather financial storms in the years to come.”