The US Federal Reserve on Tuesday moved to toughen capital requirements for the country's largest banks, saying their size and stretch could threaten the overall financial system.
The Fed said it was preparing to implement new capital and liquidity rules outlined by an international banking pact on nearly three-dozen banks with assets over $50 billion.
Rebuffing resistance from some of the country's most powerful financiers, the Fed said it would apply the extra-tough standards of the Basel III pact on 29 "globally systemically important banks."
That could mean even tougher standards for the eight American banks and bank holding companies on that list: Bank of America, BNY Mellon, Citigroup, Goldman Sachs, JPMorgan Chase, State Street and Wells Fargo.
"The recent financial crisis showed that some financial companies had grown so large, leveraged, and interconnected that their failure could pose a threat to overall financial stability," the Fed said in a statement.
The central bank said it was formally proposing a package of reforms for strengthening regulation and supervision for all of the banks and non-bank financial institutions with assets more than $50 billion, as mandated in the post-crisis reforms of the so-called Dodd-Frank legislation.
The package includes tougher requirements on capital, leveraging and liquidity, and mandatory annual stress tests.
They would also limit a bank's exposure to a single borrower or trading counterparty.
The Fed said it would supplement its own capital and liquidity requirements with the Basel standards for the largest banks.
Those standards require all banks to build a base of Tier 1 or top-quality capital of 7.0 percent of total risk-weighted assets by 2019.
But the largest, systemically important financial institutions, would have to add capital buffers of as much as 2.5 percent -- with the buffer requirement increasing with the size of the institution.
That could hit JPMorgan and Bank of America hardest, and JPMorgan chief executive Jamie Dimon has pressed the government in recent months to reject the Basel III standards.
But while not committing precisely to the Basel standard, Federal Reserve officials said Tuesday that the new US rules would be applied without any significant deviation.
The Fed said in would move to implement the new rules after a three-month period for the industry to make comments on them.
Source: AFP Global Edition