The Financial Services Roundtable, an advocacy group for the financial services industry, is among the critics of the new surcharges.
Advertisement
Adding all or part of the surcharge to the minimum capital levels banks must meet in the stress test, designed to ensure a bank could survive a sharp crisis, would likely require the banks to boost their capital levels even higher.
The Fed first proposed rules outlining the surcharge at the end of 2014.
Effective Jan, 1, 2016, GE Capital must comply with risk-based and leverage capital requirements, the liquidity coverage ratio rule, and related reporting requirements, the Fed said.
“In practice, this final rule will confront these firms with a choice: they must either hold substantially more capital, reducing the likelihood that they will fail, or else they must shrink their systemic footprint, reducing the harm that their failure would do to our financial system”.
The Financial Stability Oversight Council, which is headed by Treasury Secretary Jacob Lew and includes other top regulators such as Yellen, hasn’t yet reversed its ruling.
Speaking at the Fed meeting, Governor Daniel Tarullo said that “it would not be sensible for us to disregard GE’s announced plan to reduce [General Electric Capital Corporation’s] size by 70 percent, particularly in light of the fact that it is demonstrably executing that plan”.
He also emphasized that the Fed had gone beyond the requirements of the Basel Committee on Banking Supervision, the Swiss-based body that coordinates global banking regulation, by making a bank’s reliance on short-term securities for funding a key component in determining the amount of the surcharge. The requirements also are aimed at encouraging the Wall Street mega-banks to shrink so they pose less risk to the financial system. The Fed tweaked its formula to use an average euro-dollar exchange rate over a three-year period, as opposed to a spot rate.
The big banks – including JPMorgan Chase, Citigroup, Bank of America and Goldman Sachs – don’t like the new rule, but they have already responded to the pending changes by raising capital and jettisoning less profitable operations to reduce capital requirements. It now falls about $12.5 billion short, according to Fed officials.
The rule, finalized on Monday afternoon, affects eight of the nation’s largest banks.
In the latest move from regulators to prevent banks from being too big to fail, eight major institutions have been hit with billions in capital surcharges.
Advertisement
“While incorporation of some or all of the capital surcharges would be one way to account for those risks, it is only one among a number of possibilities, all of which we will want to evaluate”, Tarullo said. If that happens, the Fed’s action will be cancelled.
