The regulators are already requiring more like 8-10% capital from most banks, so raising the legal limit to 6% from 4% is inconsequential.

Fed Boosts Capital Rules for Banks, Hitting Stocks

June 7 (CNBC) — The Federal Reserve approved new rules Thursday for U.S. banks to set aside more money to cushion against unexpected losses, a key step in preventing another financial crisis.

The new rules require the nation’s largest banks to hold at least 6 percent of their assets in capital reserves, up from a minimum of 4 percent currently, by 2019.

The 2010 Dodd-Frank financial overhaul law—as well as an international agreement last year in Basel, Switzerland—require regulators raise capital requirements for banks.

The banks had lobbied vigorously against the proposals, saying setting aside so much money in reserve could limit what they could lend.

The rules are open to comment until September. They will be finalized after that.

Though the move was expected, financial stocks— including Bank of America and Morgan Stanley— fellsharply after the Fed approval was announced.

4 Responses

  1. so the price decline was irrational or is there an anticipation of heightened regulation going forward as a result of this change?

  2. “The banks had lobbied vigorously against the proposals, saying setting aside so much money in reserve could limit what they could lend.” Well they would.

    Given that bank assets and liabilities in the UK have expanded a whapping TENFOLD relative to GDP over the last 30 years (and the US figures are similar), I’d advocate and large REDUCTION in bank lending. The deflationary effect of that can easily be nullified by stimulus. That way we’d get more non-bank lending based economic activity and less bank lending based activity.

    Moreover, we’re in the aftermath of a credit crunch caused by excessive and irresponsible lending, aren’t we?

    1. @gaius marius,

      “Yep, that ought to snap ’em into line.”

      “You said it, Moe!”

      “Woobwoobwoobwoob, nuk, nuk, nuk.”

      “Hey guys! Now that that’s done, we’re free to tackle the deficit!! I’m tired of ownin’ all that money to China!”

      “Whadda we gonna do, Moe?”

      “I’ll tell ya. Larry, you get on the horn with that Osbourne guy over in London. He’ll know how to get us outta this.”

      “Hey Moe, where’s London?”

      “It’s a suburb of Edinburgh ya numbskull! Everybody knows that!”

      “OK, gimme a quarter.”

      “Well, where’s the quarter I just gave ya?”

      “I had to give it to the bankers to get ’em to agree to the capital reserve hike….”

      “Why, you imbecile, I oughtta….” POIT!!!

      “OW! Ooohhh, oooh, oooohhh!!!”

      “Now stop foolin’ around and get on the horn like i toldja! And see if ya can get the Operator to reverse the charges!”

      “Ok, Moe, ok! Oooohh, ooohhh!”

      “Curly, you get on the horn to China and see if you can buy us some more time. You know, just like we do with the Landlady. At least see if you can get ’em to knock a few points off the interest rate. And see if you can get summa those potstickers from ’em. All this high finance is giving me an appetite.”

      “OK Moe! I’ll get right on it!”

      “All right. With any luck, we should have this straightend out by lunchtime! We’ll have Boehner eatin’ outta the palm of our hand. Why, we’ll be able to sell this to the IMF for enough to pay off China! I’m a genius!!!”

Leave a Reply