Wells Fargo and seven other banks will have to add about $68 billion in capital to their reserves to meet new requirements. (Bloomberg News / October 10, 2012)
April 8, 2014, 3:16 p.m.
WASHINGTON — Regulators are acting to require U.S. banks to build a sturdier financial base to lessen the risk that they could collapse and cause a global meltdown.
The eight biggest banks will have to meet stricter measures for holding capital — money that provides a cushion against unexpected losses — under a rule that regulators adopted Tuesday.
The Federal Reserve, the Federal Deposit Insurance Corp. and the Treasury’s Office of the Comptroller of the Currency voted separately to require those banks to raise their minimum ratio of capital to loans to 5 percent from the current 3 percent.
The banks’ deposit-holding subsidiaries will have to achieve a ratio of 6 percent. The subsidiaries are subject to a stricter ratio requirement because the deposits are insured by the government.
The rule won’t take effect until 2018. It applies to eight U.S. banks deemed so big and interconnected that each could threaten the global financial system: Goldman Sachs, Citigroup, Bank of America, JPMorgan Chase, Wells Fargo, Morgan Stanley, Bank of New York Mellon and State Street Bank.
The eight banks will have to add about $68 billion in capital to their reserves to meet the 5 percent minimum requirement, government officials estimate.
The new requirements “will definitely make the biggest banks far stronger, but they will also make the financial system weaker,” said Karen Shaw Petrou, an analyst who heads Federal Financial Analytics in Washington. She said that’s because more lightly regulated financial firms outside the traditional banking industry hold an increasing proportion of assets, and the new rule means “still more risk will flow their way.”
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