A 'horror story for the big banks, with the worst to come'

Vincent Price

And 8 firms will be impacted in a massive way, threatening profits and possibly jobs.

JPMorgan Chase, Wells Fargo and Goldman Sachs are among eight U.S. banks facing new domestic rules on capital and debt that would be even stricter than global standards approved Tuesday.

Bloomberg News reports that firms will be forced to maintain a ratio of capital to assets that exceeds the 3% floor set by the Basel Committee on Banking Supervision, Federal Reserve Governor Daniel Tarullo said.

Another measure would compel banks to hold a minimum amount of equity and long-term debt to help authorities dismantle failing banks, Tarullo said.

The remarks show U.S. regulators plan to ratchet up demands for bigger buffers against losses to prevent a repeat of the 2008 credit crisis, ignoring bankers who say lending and profit will suffer. The measures would come on top of toughened global standards known as Basel III that Fed governors approved unanimously, even as Tarullo said parts remain too weak.

'We’re in the first few chapters of a horror story for the big banks, with the worst to come', said Coryann Stefansson, a managing director at PricewaterhouseCoopers. 'It’s clear that the U.S. is willing to push for stronger capital'.

The added measures would affect the eight U.S. institutions already tagged as globally important, according to Tarullo. The Financial Stability Board, which monitors the world’s banking system, has identified those as JPMorgan, Wells Fargo, Goldman Sachs, Bank of America, Citigroup, Morgan Stanley, State Street and Bank of New York Mellon.

The measures outlined by Tarullo could be costly, said William Sweet, a former Fed lawyer and a partner at Skadden, Arps, Slate, Meagher & Flom LLP in Washington. 'Any change of the leverage would be so far outside what Basel III proposed that it would be a dramatic impact', Sweet said, with U.S. banks at a 'distinct disadvantage' when competing head-to-head against lenders based in other nations and governed by the weaker global standard.

Hit the link below to access the complete Bloomberg article:

U.S. Gears to Impose Stricter Rules on 8 Largest Banks

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