THE BIGGEST banks in America are to be forced to hold billions of dollars of extra capital, after regulators introduced a tough new leverage ratio last night.
The Federal Reserve has issued new rules which dictate the banks must lift the percentage of equity to total assets they hold to five per cent, higher than the new international metric of three per cent for competitor banks around the world.
The change will apply to the biggest eight banks in America: Bank of America, Citigroup, Bank of New York Mellon, Wells Fargo, Goldman, JP Morgan, Morgan Stanley and State Street. The ruling is intended to tackle risks in the banking system and provide an extra buffer for crisis losses and payouts, like those seen during the financial downturn.
In her opening statement yesterday, chair of the Fed Janet Yellen threw her support behind the new rules: “The 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. Today's action is another step in the Federal Reserve's efforts to address those risks,” she said.
There is concern that the strict new rules will hamper competitiveness of American banks. Addressing this, governor Daniel Tarullo said the changes would be more binding for some banks than others, but that the impact would stabilise over time.