New Banking Rules Emphasize Stability
White House Plan Aims to Constrain Firms’ Size and Risks, Boost Reserves

By Binyamin Appelbaum

The Obama administration is moving forward with one of its most fundamental financial reforms, a plan to constrain the growth and risk-taking of giant banks and other firms. The plan is the keystone of the administration’s broader effort to reverse a generation of public policy that strongly favored the emergence of behemoths such as Citigroup. The government now wants to pressure such firms to become smaller, more stable and less likely to need the sort of massive federal bailouts that have defined the current economic crisis. Regulators would require all financial firms to hold larger capital reserves against unexpected losses. The largest firms would be forced to set aside even greater reserves, the rough equivalent of requiring a racehorse to carry more weight. The Treasury Department released a conceptual outline of the proposal Thursday, and it is scheduled for discussion this weekend at the Group of 20 meetings of world leaders in London. Unlike other key parts of the president’s reform agenda, the new standards would not require approval by Congress. “While seemingly technical, the policy will have profound impact on U.S. financial-services firms, especially since much in it can and will be implemented without legislation,” said Karen Shaw Petrou, managing partner of Federal Financial Analytics, which tracks regulatory issues for clients in the financial industry.

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