Fed proposes stricter capital rules for banks

The Federal Reserve wants U.S. banks to set aside more money to cushion against unexpected losses, a key step in preventing another financial crisis.
By MARCY GORDON Published: June 10, 2012
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The Federal Reserve wants U.S. banks to set aside more money to cushion against unexpected losses, a key step in preventing another financial crisis.

The Fed governors voted 7-0 last week to propose rules requiring all banks hold at least 7 percent of their assets in capital reserves. That's up from a minimum of 2 percent currently required and in line with international standards.

The rules are open to comment until September. They will be finalized after that. But some banks won't have to meet the requirements until 2019. That's because the rules have to be coordinated with international standards that are being phased in over the next seven years.

The capital requirements for banks were mandated under the 2010 financial overhaul.

The banks have lobbied vigorously against the proposals. They say setting aside so much money in reserve could limit what they could lend.

Some banks have increased funds

Experts say most big banks already have increased their capital levels close to the stricter levels.

Capital “acts as a financial cushion to absorb firm losses while reducing the incentive” for the firm to take risks, Fed Chairman Ben Bernanke said at the meeting.

Fed Gov. Daniel Tarullo said last week the JPMorgan's $2 billion-plus trading loss is a good example of why the rules are needed. He said JPMorgan was able to weather the loss because it had sufficient reserves to cushion against the loss.

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