Thursday, April 10, 2014

BANKING - Tougher Regulations on Limiting Risks

Gee... what a 'unique' idea.  Banks taking less risk with OUR money.  Lets not forget where banks get their money.

"Banks Ordered to Add Capital to Limit Risks" by PETER EAVIS, New York Times 4/8/2014


Federal regulators on Tuesday approved a simple rule that could do more to rein in Wall Street than most other parts of a sweeping overhaul that has descended on the biggest banks since the financial crisis.

The rule increases to 5 percent, from roughly 3 percent, a threshold called the leverage ratio, which measures the amount of capital that a bank holds against its assets.  The requirement — more stringent than that for Wall Street’s rivals in Europe and Asia — could force the eight biggest banks in the United States to find as much as an additional $68 billion to put their operations on firmer financial footing, according to regulators’ estimates.

Faced with that potentially onerous bill, Wall Street titans are expected to pare back some of their riskiest activities, including trading in credit-default swaps, the financial instruments that destabilized the system during the financial crisis.

In that respect, some regulators and advocates for tougher financial regulation said, the new rule is a more straightforward tool that will be harder to evade and easier to enforce than many of the new regulations covering the sprawling, complex businesses of banking.  Capital is important to banks because it acts as a buffer for potential losses that might otherwise sink an institution.

“It’s real, it’s tangible, it makes a difference, and improves the banks’ loss absorbing capacity,” said Sheila C. Bair of the Pew Charitable Trusts and a former chairwoman of the Federal Deposit Insurance Corporation, a bank regulator.  “Many of the other rules are about controlling behavior, but there is only so much behavior you can control.”

The banks and the shareholders have had time to brace for the rule, which was originally proposed in July.  It is also scheduled to take effect at the start of 2018, giving the banks considerable time to adapt and raise capital.

The F.D.I.C., the Office of the Comptroller of the Currency and the Federal Reserve wrote the rule.  But tensions among the agencies increased when William C. Dudley, the president of the Federal Reserve Bank of New York, raised the concern that the new rule could complicate the Fed’s efforts to conduct monetary policy.  In the final rule, however, regulators said that they expected the impact on monetary policy to be limited.

“Banks with stronger capital positions are in a better position to lend, to compete favorably in any market and to achieve satisfactory results for investors,” Thomas M. Hoenig, vice chairman of the F.D.I.C., and a firm proponent of the rule, said in a statement.  “Without sufficient capital, the opposite is true.”

As regulators approved the rule, they also proposed a crucial adjustment that would most likely make the rule tougher for firms with large Wall Street businesses.  The regulators said that they expected that adjustment to be part of the rule by 2018, but banks are certain to lobby against it, as they did with the main rule.  The financial industry contended that it was blunt and, in many ways, unnecessary.

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