News

Fed, FDIC propose to boost leverage ratios for “too big to fail” institutions

126px-US-FederalReserveSystem-Seal.svgThe Federal Reserve and FDIC issued on Tuesday a joint proposal to increase the leverage ratios of eight of the nation’s largest financial institutions, which have been dubbed “too big to fail” in the wake of the taxpayer-funded bailout.

Under the new rule, JPMorgan Chase, Citigroup, Bank of America, Goldman Sachs, Bank of New York Mellon, Morgan Stanley, Wells Fargo and State Street will be required to hold six percent of total assets in equity capital in order to be deemed “well-capitalized, CentralBanking.com reports.

Additionally, insured bank holding firms would have to maintain a buffer of at least two percentage points above the minimum supplementary leverage ratio requirement of three percent established by Basel III.

The Independent Community Bankers of America expressed support for the proposal.

“To ensure that our economy truly operates under free market principles, it’s essential that we rein in the largest too-big-to-fail financial institutions so that our financial system is adequately capitalized and better prepared for financial downturns,” the ICBA said. “In keeping with this, ICBA strongly supports regulators’ proposed rule to implement enhanced supplementary leverage ratio capital standards on the largest and riskiest financial institutions. The proposal would significantly increase capital requirements on the too-big-to-fail financial institutions that pose the greatest risks to our financial system. In particular, this rule will target the risky financial instruments that the largest institutions keep off their balance sheets. This will offer a clean, common-sense way to help offset the true level of risk that these megabanks pose to themselves, to consumers, and to our financial system and economy as a whole. While not a panacea, this is a positive step that would go a long way towards helping to safeguard our economic system.”

Comments are closed.