WASHINGTON - Federal regulators are proposing that the eight biggest U.S. banks be required to further increase the amount of capital they set aside to cushion against unexpected losses.
The Federal Reserve's proposal is aimed at reducing the potential for future taxpayer bailouts of troubled banks. The proposed requirements also are designed to encourage the behemoths to shrink so they pose less risk to the financial system. The banks include JPMorgan Chase, Citigroup, and Bank of America.
The Fed governors voted, 5-0, at a meeting Tuesday to advance the "capital surcharges," opening them to public comment through Feb. 28. The extra capital requirements would increase in proportion to how risky the regulators deem a bank to be. A key risk factor would be how much a bank relies on short-term funding markets to borrow from other banks. Those markets seized up during the financial crisis.
The requirements would be phased in from 2016 through 2018. Fed officials said nearly all eight banks already meet the stricter capital requirements, and that all are "on their way" to meeting them by the Jan. 1, 2019, deadline for full implementation.
The eight banks, considered so big and interconnected that each could threaten the financial system if it collapsed, also include Goldman Sachs, Wells Fargo, Morgan Stanley, Bank of New York Mellon, and State Street Bank.
The stricter requirements "would encourage such firms to reduce their systemic footprint and lessen the threat that their failure could pose to overall financial stability," Fed Chair Janet Yellen said at the meeting.
The importance of banks' reliance on short-term funding markets as a risk factor could mean larger required capital increases for investment banks in the group like Goldman Sachs and Morgan Stanley. Investment banks tend to use the wholesale funding markets more than commercial banks, which tend to rely more on deposits.