New Rules Force Big Banks To Keep A Bigger Cushion
By Jim Zarroli
Five and a half years after the financial crisis that devastated the global economy, U.S. officials are taking steps to strengthen the nation’s banking system. Today, the Federal Reserve and the Federal Deposit Insurance Corporation approved tough new rules that require banks to hold a lot more capital on their books. Regulators say the requirements will reduce the risk of bank failures during bad economic times.
NPR’s Jim Zarroli has more. JIM ZARROLI, BYLINE: The new regulations say that big bank holding companies, such as Citigroup and JP Morgan Chase, will have to hold capital equal to five percent of their assets on their balance sheets. And their subsidiary banks will have to keep six percent. That’s twice what they have to hold now and it is considerably more than banks in other developed countries have to hold. Karen Shaw Petrou, of Federal Financial Analytics, says that by limiting the activities of big commercial banks, the regulations will drive a lot of financial activity into what’s called the shadow banking system; likely regulated hedge funds and private equity firms. KAREN SHAW PETROU: Business will find a home where people can make money at it. And if the big banks can’t because of these rules, the business is going to go to non-banks.