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Fed releases proposals for lending requirements between large financial institutions

The Federal Reserve on Tuesday released proposals that describe new rules for the nation’s largest banks, including details on a measure that would cap the amount one financial institution can lend to another.

According to the strict new rule on transactions between large banks, any institution with more than $500 billion in assets must set aside 10 percent of the value of any lending or trading between each other, according to WashingtonPost.com. Violators will be subject to a series of new punishments.

Banks with more than $10 billion in assets will now have to face stress tests from regulators who will determine if they are prepared for an economic downturn.

The Fed did not provide a clear plan for how it would implement aspects of Basel III, a global agreement on bank capital. In July, international regulators agreed to require global banks to hold a capital surcharge of as much as 2.5 percent of common equity on their balance sheets by 2019, according to MarketWatch.com.

The Fed has expressed support for the global proposal and said it will release follow-up language on how it will be implemented in the near future.  It is waiting on clarification of whether banks that have $50 billion or more in assets would be subject to Basel III, although a Fed official said if they did require a surcharge it would be modest.

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