The US Federal Reserve on Monday set tough new capital surcharges for the country’s eight largest banks in a new post-economic crisis effort to reel in “too-big-to-fail” institutions.
However, of the eight, only one is currently below the new capital threshold: JPMorgan Chase & Co, which needs to come up with an additional US$12.5 billion in capital by January 2019, when the new rules are to be fully phased in.
Besides JPMorgan, the institutions identified as global systemically important banks (GSIBs) and subject to the new rule are Bank of America Corp, Wells Fargo & Co, Goldman Sachs Group Inc, Morgan Stanley, Bank of New York Mellon Corp, Citigroup Inc and State Street Corp.
The rule is designed “to reduce the risks posed by a GSIB to US financial stability,” the Fed said.
The extra capital required would help “to ensure that the GSIB has sufficient capital to continue its operations during times of stress and to protect the financial system from the spillover risks of its failure.”
Essentially, the new rule requires banks to increase their levels of equity to account for higher-risk activities, or to cut back those activities.
Since the rule was first proposed last year, all eight banks have taken action to meet the new standards, trimming in-house trading divisions, cutting exposure to certain high-risk financial markets, boosting long-term funding levels and adding to their capital cushions.
In December last year, the Fed had made clear that seven already met the new requirements. Alone in falling short, JPMorgan was said at the time to need about US$22 billion in new capital.
The bank had been singled out in a congressional report in November last year as having a particularly high and risky exposure to the physical commodity market.
The threat of risky activity by the largest banks to the financial system became clear in the 2008 financial crisis, when the US government was forced to prop up some of the largest institutions to protect them from large losses and extreme funding vulnerabilities.
Since the crisis, global banking regulators have made extensive efforts to identify “systemically important financial institutions,” also called “too-big-to-fail” because their failure had the potential to weaken the entire financial system.
Fed Chair Janet Yellen said during the meeting to finalize the new rules on Monday that the main aim of the capital surcharge “is to require the firms themselves to bear the costs that their failure would impose on others.”
“This final rule will confront these firms with a choice: They must either hold substantially more capital, reducing the likelihood that they will fail, or else they must shrink their systemic footprint, reducing the harm that their failure would do to our financial system,” she said.
However, banks continued to say that the surcharge was an unfair burden on their business. The Financial Services Roundtable said the US rules would leave the banks at a competitive disadvantage to foreign competitors enjoying lower capital requirements.
‘SWASTICAR’: Tesla CEO Elon Musk’s close association with Donald Trump has prompted opponents to brand him a ‘Nazi’ and resulted in a dramatic drop in sales Demonstrators descended on Tesla Inc dealerships across the US, and in Europe and Canada on Saturday to protest company chief Elon Musk, who has amassed extraordinary power as a top adviser to US President Donald Trump. Waving signs with messages such as “Musk is stealing our money” and “Reclaim our country,” the protests largely took place peacefully following fiery episodes of vandalism on Tesla vehicles, dealerships and other facilities in recent weeks that US officials have denounced as terrorism. Hundreds rallied on Saturday outside the Tesla dealership in Manhattan. Some blasted Musk, the world’s richest man, while others demanded the shuttering of his
Taiwan’s official purchasing managers’ index (PMI) last month rose 0.2 percentage points to 54.2, in a second consecutive month of expansion, thanks to front-loading demand intended to avoid potential US tariff hikes, the Chung-Hua Institution for Economic Research (CIER, 中華經濟研究院) said yesterday. While short-term demand appeared robust, uncertainties rose due to US President Donald Trump’s unpredictable trade policy, CIER president Lien Hsien-ming (連賢明) told a news conference in Taipei. Taiwan’s economy this year would be characterized by high-level fluctuations and the volatility would be wilder than most expect, Lien said Demand for electronics, particularly semiconductors, continues to benefit from US technology giants’ effort
ADVERSARIES: The new list includes 11 entities in China and one in Taiwan, which is a local branch of Chinese cloud computing firm Inspur Group The US added dozens of entities to a trade blacklist on Tuesday, the US Department of Commerce said, in part to disrupt Beijing’s artificial intelligence (AI) and advanced computing capabilities. The action affects 80 entities from countries including China, the United Arab Emirates and Iran, with the commerce department citing their “activities contrary to US national security and foreign policy.” Those added to the “entity list” are restricted from obtaining US items and technologies without government authorization. “We will not allow adversaries to exploit American technology to bolster their own militaries and threaten American lives,” US Secretary of Commerce Howard Lutnick said. The entities
Minister of Finance Chuang Tsui-yun (莊翠雲) yesterday told lawmakers that she “would not speculate,” but a “response plan” has been prepared in case Taiwan is targeted by US President Donald Trump’s reciprocal tariffs, which are to be announced on Wednesday next week. The Trump administration, including US Secretary of the Treasury Scott Bessent, has said that much of the proposed reciprocal tariffs would focus on the 15 countries that have the highest trade surpluses with the US. Bessent has referred to those countries as the “dirty 15,” but has not named them. Last year, Taiwan’s US$73.9 billion trade surplus with the US
RSS