That move helped drive some of That business away from the bank, and J.P. Morgan Chief Financial Officer Marianne Lake said last week on an earnings call with analysts That the largest USA bank by assets had surpassed its goal of reducing $100 billion in so-called operational deposits by the end of 2015.
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JPMorgan Chase (JPM – Get Report) may have to set aside $66 billion in capital reserves, the most of the largest US banks, under a Federal Reserve rule approved Monday that’s designed to protect the US economy from another financial crisis.
The Federal Reserve’s action Monday means the eight banks together will be required to shore up their financial bases with about $200 billion in additional capital.
Reserve Board Governor Daniel Tarullo said the ruling is an important bolster to the financial framework the Obama administration has built-in the wake of the recession and that the new rules “reflect the relatively new, but very significant, principle that the stringency of prudential standards should vary with the systemic importance of regulated firms”.
These kinds of restrictions on banks have prompted worries about unintended consequences, such as volatility in financial markets that a few ascribe to banks being less willing to take on risk. The new additional layer of requirements for the biggest banks also exceeds the levels mandated by global regulators. By January 1, 2018, it must follow other rules, including undergoing Fed stress tests. “Today our capital and liquidity levels are above the regulatory minimums, and we are fully prepared to meet the applicable standards as we execute” the plan to sell assets.
As an alternative, the banks could shrink in size to minimize the fallout of their potential failure on the financial system. The banks include JPMorgan Chase, Citigroup and Bank of America.
The tougher regulation of GE Capital stems from the Dodd Frank financial reform that requires the Fed to subject certain non-banks to new constraints reduce risks to the financial system. He said he expects that Fed staff this year will develop recommendations including changes that would make the stress tests “better address systemic risks arising from correlations in the exposures and activities” of large banks. The new surcharge will begin being phased in at the beginning of 2016. The new surcharge requirement comes on top of a base 7% common-equity capital requirement that most banks face.
The Fed governors also unanimously adopted standards for new supervision by the Fed of General Electric Co.’s finance arm, which will be subject to rules similar to those governing big banks.
All the firms were on their way to meet the surcharges over the three-year period during which they will need to implement the measure, the Fed said. The company’s general counsel, Brackett Denniston, said the finance unit will apply to lose its systemically important label sometime next year.
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GSIBs have to calculate their surcharges under two methods as per the final rule and use the higher of the two surcharges.
