Tuesday, July 21, 2015

U.S. banks to hold more equity capital

The Federal Reserve will meet on Monday to adopt a new rule for the eight largest U.S. banks to hold more equity capital, amid fears on Wall Street that the measure may make it less profitable.
The rule was largely similar to when it was proposed in December, when the U.S. central bank said the banks would face a surcharge of between 1 percent and 4.5 percent of their assets.
The Fed also gave numerical estimates of what the rule would mean for each of the banks. The numbers were in line with an estimate by Goldman Sachs (GS.N) analysts in December.
Regulators want U.S. banks whose failure could threaten markets to fund themselves more with shareholder equity, and less with borrowed funds.
They also want to discourage banks from relying on unstable short-term borrowing, a key contributing factor to the demise of Lehman Brothers at the height of the financial crisis in 2008.
JPMorgan Chase & Co (JPM.N) faces the highest surcharge at 4.5 percent, followed by Citigroup (C.N) at 3.5 percent.
All the firms were on their way to meet the surcharges over the three-year period during which they will need to implement the measure, the Fed said. Seven already meet it now.
Only JPMorgan faces a shortfall of $12.5 billion at the moment, Federal Reserve staff said on a conference call. In December, that number still stood at some $20 billion.
The company said in February that it would do "whatever it takes" to keep the surcharge below 4.5 percent.
The rule does not require the firms to meet the surcharges in the Fed's so-called stress tests, an annual health check during which banks have to run through a simulated severe economic and financial crisis.
But the Fed later this year would look at changing the stress test procedures to better address systemic risk arising from the largest financial institutions, Fed Governor Daniel Tarullo said in a statement.
"While incorporation of some or all of the capital surcharges would be one way to account for those risks, it is only one among a number of possibilities, all of which we will want to evaluate," Tarullo said.

(Reporting by Douwe Miedema; Editing by Paul Simao)
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