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Now is not the time for Fed’s new bank rules, experts say

John DuganAs the U.S. economy struggles to recover from its financial crisis, banks are contending that it is a bad time for the Federal Reserve to limit their ability to lend to consumers.

On Tuesday, the Fed released a new rule that would require banks to put aside additional capitol to cover their assets, BusinessWeek.com reports.

“The Fed is raising requirements as firms get bigger in part to reduce their systemic footprint,” John Dugan, a former comptroller of the currency, said, according to BusinessWeek.com. “They are creating disincentives to growth and complexity. It definitely creates more cost the bigger you get.”

Other experts say that the rule would actually create disincentives for banks to lend. making it more difficult for businesses to receive loans. This may add to the level of hidden unemployment in the U.S., which has reached 19 percent, according to Investors.com.

The Fed defended its rule, writing that some financial companies had grown so large, leveraged and interconnected that their failure could pose a threat to overall financial stability.

The rule is also a step towards compliance with new Basel III accords, a new global agreement to make the global financial system less susceptible to crisis.

Observers say that Basel deals have failed in the past because some assets are considered less risky than others and require less capital to be set aside.
 

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