WASHINGTON — Federal regulators are proposing the eight biggest U.S. banks be required to further increase the amount of capital they set aside to cushion against unexpected losses.
The proposed requirements are aimed at lessening the chances of future taxpayer bailouts of troubled banks, while also encouraging the behemoths to shrink so they pose less of a risk to the financial system.
The Federal Reserve governors were to vote at a meeting Tuesday to advance the so-called “capital surcharges.” They would increase in proportion to how risky the regulators deem a bank to be.
The banks as a result would have an incentive to shed businesses and get smaller to avoid having to set aside more capital.
The eight banks, considered so big and interconnected that each could threaten the financial system if they collapsed, are JPMorgan Chase, Citigroup, Bank of America, Goldman Sachs, Wells Fargo, Morgan Stanley, Bank of New York Mellon and State Street Bank.
Some of the banks already meet the stricter capital requirements being proposed, experts say. Nancy Bush, a banking analyst at NAB Research, believes a majority of the eight banks currently do so.
“We intend to improve the resiliency of these firms,” Fed Gov. Daniel Tarullo told a Senate hearing in September. “This measure might also create incentives for them to reduce their systemic footprint and risk profile.”
Stricter capital requirements for banks were mandated by Congress after the financial crisis, which struck in 2008 and ignited the worst economic downturn since the Great Depression. Hundreds of U.S. banks received taxpayer bailouts during the crisis, including the eight Wall Street mega-banks that would be subject to the additional layer of capital requirements under the Fed’s proposal.
In recent years, the Fed and other regulators have put into effect a series of rules for banks to increase their capital buffers, as required by the 2010 financial overhaul law. The new additional layer of requirements for the biggest banks would also exceed the levels mandated by international regulators.
“There is a fair amount of apprehension” among the banks as to how steep the new requirements will be in the proposal, Bush said Tuesday morning before the Fed governors’ meeting. She said the banks can probably “live with” the requirements so long as they are the last of “this endless fiddling with capital” by the regulators.
Banking industry groups say the Fed requirements could limit access to loans for businesses and consumers, by reducing the amounts that banks would have available to lend.
In a related move this fall, federal regulators required all large U.S. banks to keep enough high-quality assets on hand to survive during a severe downturn. The rules subject the banks for the first time to so-called “liquidity” requirements, replacing voluntary standards. Liquidity is the ability to access cash quickly.
BY MARCY GORDON, AP Business Writer